GRDadof3

West Michigan/Grand Rapids Economy

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I've heard many times the next bubble to burst will likely be student loans, but I'm not sure what kind of effect that would have on the economy.  I'm no economist.

 

It's going to ... and has ... slowed down the cost of tuition increases at those hallowed ivory towers that produce graduates burdened with a mountain of debt.  It has also delayed the housing recovery because of that debt.

 

For those who ever wonder if it's better to buy or rent check out this link.  Basically if you can scrape up 20K for a down payment on a place you plan to stay a while a $200,000 house is cheaper than rent at $750/mth.

 

http://www.nytimes.com/interactive/2015/06/17/upshot/100000002894612.app.html?smid=tw-nytimes

 

Frankly the country needs a reboot in education that focuses more in vocational tech and less on liberal arts.  A pity the community college system remains hamstrung by not offering an extensive offering of 4 yr degrees other than the few bones the university system has thrown out.   

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I don't see how there can be a student loan bubble to burst.  sure there are a lot of them but there isn't a market, at least at the consumer level, to crash.  a crash is usually due to mass selling of something but I don't see how that is going to happen. 

 

Private lenders can and do sell off student loan debts. Also, if a person refinances their government student loan/s with a private lender, that private lender can sell off the loan. 

 

If enough of those purchased debt obligations turn sour, there could be a mass selling and panic in the market. 

 

It might be much easier to handle a student loan debt financial crisis as the US Government already has entities in place that are specifically designed for handling large amounts of loans. Whereas, when the government bought GM, Chrysler, and the banks, it was kind of it's first go around.

Edited by temporary.name

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I'm not sure what you are talking about if you don't include the stock market.  almost by definition a recession includes the stock market. I took the liberty of copying and pasting it below.  if you are referring to a minor market correction then that is something different altogether.  

 

re·ces·sion

rəˈseSH(ə)n/
noun
 
  1. 1
    a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

 

 

I don't know how to help you if you don't know what I mean. I don't have time to teach a class on economics and the stock market. 

 

But here's a good place to start: company stock prices can skyrocket even though they make no profit and their productivity is low/non existent, ie stock prices rarely correlate to economic output or job growth. In fact, a company might cut 10,000 jobs and their stock price might go UP. 

 

OK, here's some more education, even though I said I didn't have time. :) The great majority of companies in this country are fewer than 100 employees and privately owned. They never make the DJIA or even Nasdaq, yet they are responsible for adding 90% of the jobs in the US. The stock market doesn't reflect their activities.

 

If you watch cable news, they'll say things like "The Dow Jones Industrial Average was down 100 points today despite good jobs news." It's maddening. These reporters don't even realize what their reporting on, and their complete lack of understanding of how the jobs market works and how the stock market works is hilarious to watch. 

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well at least we can agree on the idiocy of cable news :)  and while I understand that the Dow doesn't include the vast majority of the businesses that generate the GDP, I challenge you to find two consecutive quarters where the Dow diverges from the broader economy. While stock prices are somewhat artificial, they also reflect public sentiment and willingness to invest (spend) which does drive the economy (obviously not the only factor though).

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well at least we can agree on the idiocy of cable news :)  and while I understand that the Dow doesn't include the vast majority of the businesses that generate the GDP, I challenge you to find two consecutive quarters where the Dow diverges from the broader economy. While stock prices are somewhat artificial, they also reflect public sentiment and willingness to invest (spend) which does drive the economy (obviously not the only factor though).

The stock market is a reflection of the economy.  If we enter into a recession of course the stock market will be down.   But the economy doesn't go into a recession because of the stock market.  When markets start to go down it's because people are worried about the greater economy.   

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Rent prices!

 

A 7.8% increase in year over year rent (Zillow Rent Index) places Grand Rapids squarely in the top tier.  Many that surpass us come from dips a year ago (Jackson, MI).  More impressive is the generally unabated upward slope from Sept 2013 without the cyclic peaks & valleys. 
 
 
Nationally the push back is evident as people are starting to blink at rent prices.  Home values are recovering (250,000 crossed over from under to above water in Q1), creating a wealth effect.  Scarce home inventory continues.  Birth rates are finally on the rise.  Credit histories are getting repaired and expunged after foreclosures.  Debt has been chipped away.
 
There's bound to be a recession ultimately but for now I would load up on stocks that are home/consumer oriented.  That's where I'm steering my clients.  (Disclosure:  I'm a Registered Investment Advisor). 
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The stock market is a reflection of the economy. If we enter into a recession of course the stock market will be down. But the economy doesn't go into a recession because of the stock market. When markets start to go down it's because people are worried about the greater economy.

Totally agree. The Dow can be used as a surrogate marker because of this relationship.

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well at least we can agree on the idiocy of cable news :)  and while I understand that the Dow doesn't include the vast majority of the businesses that generate the GDP, I challenge you to find two consecutive quarters where the Dow diverges from the broader economy. While stock prices are somewhat artificial, they also reflect public sentiment and willingness to invest (spend) which does drive the economy (obviously not the only factor though).

 

Most stock owners are passive owners now, and have them wrapped up in investment portfolios (401k's, etc). They generally don't make buy and sell decisions on a daily or even a quarterly basis. The ones making buy and sell orders are dealers, who don't really pay attention to the broader economy. They're making individual decisions as to whether GE's restructuring will cause their stock to go up or down, for instance. Or whether a new biotech startup is about to take off. 

 

However, I will agree that now that the stock market is up quite a bit, people are probably pouring more money into their investment portfolios. In fact, we are. But not because of economic growth (most of the MSA's in the US are only growing marginally or modestly), but because the market is up. 

 

Here's the DJIA over last five years, showing quite a large correction in late 2011.

 

http://www.marketwatch.com/investing/index/djia/charts?symb=DJIA&countrycode=US&time=12&startdate=1%2F4%2F1999&enddate=6%2F24%2F2015&freq=1&compidx=none&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013

 

At that same time, the jobs market kept chugging along as if nothing had happened.

 

http://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=CE_cesbref1

 

But back to my earlier point, if you know (believe) Grand Rapids is on a growth pattern of at least another 5 years, you can make local investment decisions based on that premise. You can even make investment decisions that will pay off when the economy recedes again. There's money to be had on both sides of the curve. 

 

It will be really interesting to see what happens with the local real estate industry, both owner occupied and rentals. Growth can only outstrip supply so long before prices rise too high. We're seeing national apartment companies move into the area as one result. 

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A 7.8% increase in year over year rent (Zillow Rent Index) places Grand Rapids squarely in the top tier.  Many that surpass us come from dips a year ago (Jackson, MI).  More impressive is the generally unabated upward slope from Sept 2013 without the cyclic peaks & valleys. 

 

Let's not  forget that at least in the near downtown area, a lot of this is being driven by the quality of the housing stock as well.  Old, small and junky 2-4 units that change hands (or even that do not) are having tens (or hundreds) of thousands poured into them.  It is very easy to do major renovations in Heritage Hill and Eastown and pull in $1500-$2000 a month on a nicely refinished two or three bedroom.   5-6 years ago, there was virtually zero market for that quality level.  I suspec that potential is also the prime driver of the new market rate construction. 

Edited by x99

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Nationwide apartment construction at 28 yr high - http://www.marketwatch.com/story/home-builders-rush-to-put-up-rental-units-at-28-year-high-2015-07-17?mod=MethodeStories

On the other hand, housing starts are off the all time lows and back to levels previously only seen at the depths of recessions.  Woohoo what a recovery!

 

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Nationwide apartment construction at 28 yr high - http://www.marketwatch.com/story/home-builders-rush-to-put-up-rental-units-at-28-year-high-2015-07-17?mod=MethodeStories

On the other hand, housing starts are off the all time lows and back to levels previously only seen at the depths of recessions.  Woohoo what a recovery!

 

 

Not sure if you're being sarcastic, but I take that as great news actually. The residential construction market is coming back slowly, instead of shooting up like it did before the crash. That should put people's minds at ease who think we're facing some kind of "bubble." There's still a LOT of room for growth in the residential construction market, especially in a growing area like Grand Rapids. 

The big issue is that landowners have gotten greedy and want too much for their land, which is why big parcels are just sitting on the market, overpriced and not moving.

 

permits.png

Edited by GRDadof3

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Not sure if you're being sarcastic, but I take that as great news actually. The residential construction market is coming back slowly, instead of shooting up like it did before the crash. That should put people's minds at ease who think we're facing some kind of "bubble." There's still a LOT of room for growth in the residential construction market, especially in a growing area like Grand Rapids. 

The big issue is that landowners have gotten greedy and want too much for their land, which is why big parcels are just sitting on the market, overpriced and not moving.

 

 

 

There's a bunch of reasons the single family market is still in the dumps ... and may be for quite some time.  Without going into detail it's not necessarily a bad thing.  Sustained slow & steady can be a good thing but there's also a bunch of exurbs which are booming once again.  Apparently the W MI culture doesn't favor commutes over 40 miles because I suspect there's plenty of cheap land out there which developers would purchase if they thought there was demand.

Edited by arcturus

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Latest stats are out: 4.3% growth rate in non-farm payroll over this time last year. That's...um...unheard of.

http://www.bls.gov/regions/midwest/mi_grandrapids_msa.htm#eag

 

541,600 employed, nearly 100,000 more than January 2009. 

Charts! For those who like pictures. 

 

 

19907764152_080793c269_z.jpg

 

 

 

Edited by GRDadof3
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Year to date (though June) residential sales up 9.7% vs 2014.
Sales volume up 20.2%.

http://www.grar.com/docs/media/june_2015.pdf

The residential single family market is not in the dumps, but the residential single family new construction is not up to where it should/could be. In fact, it was down across the HBA members this second quarter vs last year at this time, I think primarily due to lack of inventory and rising prices.

But builders like Eastbrook Homes locally are up to record highs:

http://www.grbj.com/articles/82873-a-real-confidence-builder

If you have the land/lot inventory, there are buyers out there and moving into the market. 

 

 

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If you have the land/lot inventory, there are buyers out there and moving into the market. 

What's your thinking as to why we haven't seen more land acquisitions in the further outskirts for new single family homes?  Is it the local culture I alluded to earlier where commute times are a bigger factor than elsewhere, constraining purchases to closer and more expensive property, or are developers still not confident to take the risk knowing what happened before?   In light of persistent, chronic shortage of new housing over the past few years I'm surprised we haven't seen more developments either under construction or announced.

 

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What's your thinking as to why we haven't seen more land acquisitions in the further outskirts for new single family homes?  Is it the local culture I alluded to earlier where commute times are a bigger factor than elsewhere, constraining purchases to closer and more expensive property, or are developers still not confident to take the risk knowing what happened before?   In light of persistent, chronic shortage of new housing over the past few years I'm surprised we haven't seen more developments either under construction or announced.

 

 

A lot of the suburban developers are getting "old", and aren't all that excited about getting back into the game. Many were farmers that got into development by accident. Some are still on the hook for personal guarantees and calls from the banks during the meltdown. It's not really a field that younger people can get into, unless you're in the family business (like Vissers or Koetjes, for instance).

There is certainly demand though. Any decently priced new development in Forest Hills or Caledonia, the two markets with the lowest amount of lot inventory (by my estimation/looking at the stats), would probably sell out fairly quickly. 

The market that is doing really well is empty nester products, or "detached condominiums." Just drive around Thousand Oaks Golf Club and you'll see a building boom of them, for instance. 

Edited by GRDadof3

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Opportune time for a developer with deep pockets.  Wouldn't be surprised to hear about a major national home builder stepping up to the plate, not unlike the interest downtown is getting from out of state apt developers.

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Opportune time for a developer with deep pockets.  Wouldn't be surprised to hear about a major national home builder stepping up to the plate, not unlike the interest downtown is getting from out of state apt developers.

 

Might be, but Pulte tried to make a go of it but they needed at least 300 homes a year in any one market for it to make sense. I don't think they ever got there. Maybe 200 - 250.

Mayberry Homes and Allen Edwin are definitely "regional" builders, as close as you can get to a national chain builder.

 

 

Edited by GRDadof3

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Latest stats are out: 4.3% growth rate in non-farm payroll over this time last year. That's...um...unheard of.

http://www.bls.gov/regions/midwest/mi_grandrapids_msa.htm#eag

 

541,600 employed, nearly 100,000 more than January 2009. 

Charts! For those who like pictures. 

 

 

19907764152_080793c269_z.jpg

 

 

 

 

Going back to this, I perused several other heavy job growth markets (over 1 Million in the metro), and Grand Rapids is right up there at the top in growth percentage year-over-year, at 4.3%. Salt Lake City might be the fastest growing metro area right now with 4.4% a year, without doing a full thorough review. San Francisco is tied with GR at 4.3%. Austin has "slowed" to 3.3% annual growth. Denver is at 3.5%. Dallas is at 3.6%. Charlotte is at 3.3%, Raleigh has cooled a bit to 2.8%. The once hot (always hot) Phoenix and Atlanta have dropped into the 2% range. Orlando has moved ahead of the rest of dog-lagging Florida to tie GR at 4.3% annual growth. 

So the only 3 I could find even close to GR were Orlando, Salt Lake City, and San Fran. Cray. 

Edited by GRDadof3

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There's a bunch of reasons the single family market is still in the dumps ... and may be for quite some time.  Without going into detail it's not necessarily a bad thing.  Sustained slow & steady can be a good thing but there's also a bunch of exurbs which are booming once again.  Apparently the W MI culture doesn't favor commutes over 40 miles because I suspect there's plenty of cheap land out there which developers would purchase if they thought there was demand.

you wonder also if it is due to the fact that compared to other markets, real estate is comparatively inexpensive.  I didn't form my commuting beliefs around here but there is no way I'm commuting 40 miles each way. that's time you'll never get back and is worth a lot more than any potential savings on a home.  my current commute is between 2 and 7 minutes depending on where I am driving to. I personally don't think I could take more than about 15 minutes for an extended period.

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