The economy and its effects on Charlotte

[Charlotte_native]

Back a few posts there are some lofty discussions about how and why residential towers were built and proposed in uptown Charlotte. Unless I missed it one of the factors left out is desire. There wasn't just some unrealistic push by developers to built something for investment to capitalize on easy credit. There was demand by buyers. Buyers who wanted whatever lifestyle they percieved to be in center city Charlotte and with that type of condominium. Consider them stupid or whatever you wish to, but just like someone who chooses a lake house, townhouse, mcmansion, they wanted what they bought. In many cases with my neighbors, they moved from a city with mid and high rise condos and condensed urban areas, and upon arriving here wanted to find the same.

The denser deveopment in uptown actually started at a moderate pace with just a few low rise and mid rise buildings being built in the late 90's and early 2000's. Once momentum started building, along with our population growth, more and more came online. Likely too many, but again, it was driven by demand coupled with population growth and, yes, easy credit. But easy credit or not, if no one buys, nothing get built. There were likely too many investors in many of the projects, but it wasn't a majority of buyers, usually under 20%. I can say with a good bit of certainty that people wanting to flip these type of units are likely not in the picture any longer, but those that want to live downtown are.

It was demand that brought these towers and it will be demand that brings back more over time. All the planning concepts and developer desires in the world won't make people live somewhere they don't like or don't want. People liked and wanted what was built and when credit dried up, then crashed, so did construction. It also halted people from signing up, right now, for new projects because they can't get financing. This also isn't to say they should get financing for this right now or that everyone should have gotten the loans that they did.

To say that market conditions and the credit crunch will completely change forever the construction patterns and lifestyle desires of individuals is taking a pretty long jump. It certainly might turn out that way, but it would be from people deciding not to live there, not because some land pressure made those buildings go away. Regardless it is just opinion from us all.

[monsoon]

......

To say that market conditions and the credit crunch will completely change forever the construction patterns and lifestyle desires of individuals is taking a pretty long jump. It certainly might turn out that way, but it would be from people deciding not to live there, not because some land pressure made those buildings go away. Regardless it is just opinion from us all.

[atlrvr]

Just a few general points.

All real estate boom/busts are cyclical, with the average boom last 4-6 years and the average bust lasting 3 years. The primary difference between this bust and others, is there is usually more lag time of certain sectors. Usually a couple of sectors continue to see development and investment while others are in their downtime. This time, however, while all commercial sectors were strong after the bust of residential, they collapsed as well in short order. It's going to take residential construction to dig everyone out of the whole. Unfortunately, nationwide, there is a lot more product than there is people. On the positive, Charlotte was not seriously over built and have maintained relatively high population growth (though that has slowed). This bodes well for local residential construction to resume in a couple of years, but commercial demand is more closely tied to the national economy, which may lag for an additional couple of years.

On the positive for the national residential market, the average age of a first-time home buyer is 32. The highest birth-rate among echo-boomers is 1979-1982, meaning that 2011-2014 should be the years of peak demand.

[unc2007lsu]

My Problem is seeing where the light is at the end of the tunnel. The media talks all the time about the "credit crunch", so much so that I am getting paranoid that companies are going to pull my credit card and repo my car. Its out of control the negativity that is out there! People still can get mortgages. They just can't over lever themselves like they were in the past. We are going back to a normal, sustainable market and its going to hurt, but its not the end of the world. What is disheartening is the unemployment rate. The increase in unemployment, some predicting to go north of 8%, is my biggest fear along with outsized supply in housing. It hard to see the end in housing, with the price of homes far out pacing wage growth in the US. How do we get willing and able home buyers back to the market? We are in Charlotte, not CA, AZ, NV, or FL. Price appreciation didn't hit the extreme levels like those cities. I don't own a home, I'm in the process of buying a condo in Uptown and I'm extremely nervous. Should I be feeling this way? Shouldn't I be excited about buying that new place? Its a confusing time, with this fog of negativity. Negativity is all around us and when we let it become part of us, its hard to get rid of.

[boilerdown]

It was demand that brought these towers and it will be demand that brings back more over time. All the planning concepts and developer desires in the world won't make people live somewhere they don't like or don't want. People liked and wanted what was built and when credit dried up, then crashed, so did construction. It also halted people from signing up, right now, for new projects because they can't get financing. This also isn't to say they should get financing for this right now or that everyone should have gotten the loans that they did.

To say that market conditions and the credit crunch will completely change forever the construction patterns and lifestyle desires of individuals is taking a pretty long jump. It certainly might turn out that way, but it would be from people deciding not to live there, not because some land pressure made those buildings go away. Regardless it is just opinion from us all.

[monsoon]

..... I'm extremely nervous. Should I be feeling this way? Shouldn't I be excited about buying that new place? Its a confusing time, with this fog of negativity. Negativity is all around us and when we let it become part of us, its hard to get rid of.

[unc2007lsu]

Do not make decisions on the place on where you live based on if it is a good investment or not.

[atlrvr]

I take offense to the suggestions that "clinging to the belief that what we are seeing is cyclical" makes me someone in denial. It's simply looking at historical data. I've spent plenty of time posting on this board in-depth research on market trends, interest rate fluctuations, demographic trends, economic theory, etc. If you want to debate that I'm wrong, and not offer any empirical evidence to support it, then fine, but I don't believe the posters on here who have laid out logical arguements should be categorically dismissed as being in denial. That's a heavy-handed way to debate, and it doesn't foster interesting discussion on perhaps the most relavent topic to Charlotte's urban future.

[Charlotte_native]

That is a great point which many people have lost sight of. But my main issue is the instability of the overall job market and the viability of Uptown of the next 5-10yr time frame. Again, these are things in the future that no one can predict, but it makes it hard to go against the tide. There are a number of places in uptown that aren't overpriced, but aren't selling because people are unable to obtain a mortgage. Does that scenario push prices down? I don't know, it sounds like it just will be a slower process for homes to come off the market in a non-bubble city. But the viability of Charlotte is more of my concern.

[Charlotte_native]

While some still cling to the belief that what we have seen is cyclical, expected, and the boom times will return, are simply in denial of what is going on around us. There has been nothing like this bust since the 1930s and I don't think anyone knows how it will turn out.

[Charlotte_native]

Its a confusing time, with this fog of negativity. Negativity is all around us and when we let it become part of us, its hard to get rid of.

[atlrvr]

And as soon as the economic talking heads say prices have bottomed out, and that the economy is on the rebound, the TV newspeople will regurgitate it enough that everyone is convinced they need to go out and by a house before prices skyrocket like they did in 2005-2006.

The fog of negativity is a good generalization, because regardless of home prices in relation to historic trends, as long as we hear about layoffs and recessions, etc, nobody is feeling good about buying.

So much of the economy is intertwined into public perceptions (consumer confidence indexes affect stock prices, which affect management decision affecting employment numbers affecting consumer buying powers affecting consumer price indexes affecting stock prices as well affecting dividends and bonuses affecting big ticket purchasing, etc etc etc etc) As cycles go, we will bottom out when all the bad news to tell has been told.

At some point, all the houses that "must sell" will be sold at whatever prices that occurs, and the market will be void of inventory. The unemployment rate will peak, as all non-critical jobs are cut, and the general pessimistic attitude will shift from "how much worse can it get" to "all it can do is get better".

At this point, if I was an economic talking head, I predict all of 2009 and early 2010 will be bad, and then things will turn around. Growth should accelerate at baby-boomers hit retirement, cash-out on retirement funds, and wages and employment rates increase to fill the void. Echo-boomers will want to enter the housing market as this coincides with their historical timing of becoming buyers, and as I said above, the perception will be that its a good time to buy at depressed prices. All of this could be good for urban areas, as I suspect energy prices will be at very high levels again, and this generation is responding to urban environments as a reaction to the doldrums of the suburban childhoods....or maybe I'm just in denial.

[nashbill]

And this is one of the large factors in what is going on right now. These feelings are pervasive and as long as they are out there we'll see a lot of what is going on right now. Not that it isn't reasonable to feel this way, there are some serious problems we face right now, but confidence and negative vibes are in large part contibuting to keeping us in the hole we are in. As long as no one wants to spend money, from individuals up to big corps and banks, everything will stay still.

[Charlotte_native]

As an example of this, I was listening to NPR on my way to work and they were interviewing therapists. The therapist were reporting that patients would rather talk about the economy than personal problems. This ranged from teens to older adults. It's what is on everybody's mind these days.

[monsoon]

...... A general consensus that I've noticed, though, has been that we are at, or near, the bottom. That doesn't mean everyone is all jolly or believes this will be over soon, but that we are seeing the worst coming at us right now. ....

[monsoon]

I take offense to the suggestions that "clinging to the belief that what we are seeing is cyclical" makes me someone in denial. It's simply looking at historical data. I've spent plenty of time posting on this board in-depth research on market trends, interest rate fluctuations, demographic trends, economic theory, etc. If you want to debate that I'm wrong, and not offer any empirical evidence to support it, then fine, but I don't believe the posters on here who have laid out logical arguements should be categorically dismissed as being in denial. That's a heavy-handed way to debate, and it doesn't foster interesting discussion on perhaps the most relavent topic to Charlotte's urban future.

[Charlotte_native]

People who say this, don't understand the real reasons behind this meltdown. I explained it above. We have become a nation of consumers, not producers. This is unprecedented in our history. It should not be so hard to understand. Where is the money coming from to buy the things we need that are now produced in other countries? When people get around to answering this question and suggesting the tough medicine that is going to have to be taken, then you will see us come out of it.

[Charlotte_native]

There is no reason to believe that what we are seeing now is based on anything resembling events in the history of the USA since the 1930s.

When was the last time that major Fortune 25 companies have been in front of congress demanding multi-billion dollar bailouts or they are simply going to go under?

[atlrvr]

I've presented plenty of hard facts to base my conclusions, but those don't seem to get addressed.

How about this, finance as a simple definition is leveraging money to generate profit. A bank's profit model is based on having sources of income (loans) correspond to sources of expense (interest on deposits) and of course generate a positive yeild margin.

What you are suggesting is that:

A) Banks will stop lending.

B) Banks will keep paying interest on deposits

Of course this generates substantial negative revenue, and would quickly bankrupt every institution. A full migration of financial institutions to treasuries would again result in such minimal yeild that there would be negative profits.

This is why I can say with great confidence that it IS cyclical. Money has to move through the financial system, which mean loans have to be originated. If not, we will see a lot of stockpiling of cash in mattresses. At that point in time, you won't be able to tell me that I was wrong, because I'll probably have cancelled internet service by then.

[monsoon]

^You seem to miss the point that I am making of "where is the money coming from"? The money was coming from the illusion of ever increasing property values and the banks were making profits off transactions based on this. Add in the money being made from construction, real estate, services, etc etc etc. all based on a property going up in value at unsustainable rates and we had the illusion of good times going on. Never mind that millions of jobs, technology and processes were being shipped overseas and average household incomes were falling during this same period. It was a recipe for disaster that has finally been baked. It's crashed and burned now and has re-exposed the fundamental problem with this economy. That is there are not enough jobs and production to support the population who now must buy almost everything it consumes from overseas.

In other words, the wealth here was really disappearing while we were deluding ourselves over rising property values. This is backed up by the fact that trillions of dollars of it have simply disappeared in an eyeblink. The DOW was around 7500 yesterday. What the banks do in all of this is irrelevant. They are just brokers that make money off transactions and they have been granted a semi-monopoly in this process by having exclusive access to the federal reserve, etc. I don't contend anything about the banks beyond that because they are not on the production side of the equation and instead, like leeches suck from the system.

There are only two answers to solving this issue and neither are being discussed now. The first is to put up trade barriers that will put production back into this country. The second, and more likely to happen is that everyone is going to be force to accept a lower standard of living. They are now talking about de-flation which is the next phase of this and that is going to drive home this fact to people who still think they are insulated from these issues. It has been a long time since this country had to deal with falling prices.

So this is my analysis of your hard facts. Basically you talk about the mechanics of part of the engine, but you fail to mention how the engine gets fueled.

[atlrvr]

This moves the discussion into A2's area of economic theory. Essentially the question really is "Is America too big to fail?" I won't hypothesize on that at the moment, because I really don't know. Iceland sure wasn't.

[Charlotte_native]

I think people, at least everyone I know, are beginning to realize that they are going to have to adjust their standard of living. They may not be thinking about it in those terms, but look at retail sales, look at why the auto companies are failing, look at consumer spending in general. People are cutting back, they are (the ones that aren't insulated in their minds because they have savings) ditching gas-guzzling cars even while prices have dropped again, they aren't eating out as much and aren't shopping like they were. I'm not trying to imply that they've changed to the extent that it will be necessary over time, but it is already happening. NPR did a show the other day about trade for gifts or making gifts at home for the holidays. I know people will say this is just for the now and will change if folks see improvement, and to a degree it will, but I think in many aspects of peoples lives it won't go back to what it was before -- primarily in wasteful autos and in discretionary spending. I know we've adjusted our lifestyle and pledged to each other to keep it where it is regardless of what changes in the next year or two.

Foreclosures and deflation will also reset prices and values. That will take time to rebound as well. Market forces are actually doing much of what (painfully) needs to be done. Companies are failing, the strong are surviving.

I've also heard a story on NPR about a small but real shift in some manufacturing jobs, primarily at least in this story furniture production, that have come back to the US from overseas do to our pitiful dollar value and the cost of shipping.

Add to this on a local level the announcement that two financial companies are considering a move here, MS and GMAC. Not that it will make up for the losses that we'll have from Wachovia, but there is some positive that comes from negative. The world hasn't stopped as a result of all of this and there are some segments of the market doing well. Wish I had stock in Family Dollar.

[monsoon]

This moves the discussion into A2's area of economic theory. Essentially the question really is "Is America too big to fail?" I won't hypothesize on that at the moment, because I really don't know. Iceland sure wasn't.

[monsoon]

Someone made a movie about Charlotte's hot real estate market.

[unc2007lsu]

The economy is going to be slow for some time, I can't believe that I saw Goldman Sachs raising there 4th quarter unemployment estimates to 9%!!!! If we hit that level, we are going to be in a world of trouble.