Wouldn’t it be wonderful if you got up tomorrow and your newspaper’s headline read “Congress actually did something good yesterday to encourage business and job growth?” I know – don’t hold your breath.
But that was part of the message imparted to my colleagues from around the country at recent meetings we had in Austin (yeah, Austin, in July – good planning). People are getting used to incompetence in government and are learning to deal with it and get on with their lives, according to a political commentator. We were cautioned that if we watch more than 7 minutes of news a day we’re wasting our time because there isn’t more than 7 minutes of real news out there. Everything else is a manufactured crisis and even uninformed people are getting tired of the level of manipulation. As most of us learned from Aesop, you can only cry wolf so many times before people start ignoring you – it’s crisis fatigue.
It’s also no revelation that American’s today don’t tolerate deferred gratification. Our parents and grandparents planted trees knowing full well they may never sit in the shade of those trees but their kids would, and their kids. These days a delay of a couple years produces severe angst leading to the kind of pent-up demand we’re experiencing pushing housing, automotive and other purchases. Household debt service is at an all-time low so people have more money to spend. They would be spending even more if they had any confidence in the government but you can’t short-sell the American people – sooner or later they revert to form and start spending again.
Corporate profits have been at record levels for two years but they’re still not hiring. Business is picking up in spite of Washington, albeit at a slower pace than it would if leaders actually had any confidence in a positive business economy and less fear of the impact of the Affordable Care Act.
Federal manipulation of the regulatory market, through Dodd-Frank and other measures, is keeping banks from lending money thus decreasing the velocity of money. Even though we’ve printed $2.4 trillion, it’s not being loaned out and spent so it isn’t moving. 2.4 trillion times 0 is still 0. (Velocity of money – guy walks into a hotel, asks for a room. Proprietor charges him $50. Guy pays and heads upstairs. Proprietor runs out the door and pays his laundry bill [1], launderer heads down the street and pays his grocery bill [2], grocer goes out and buys a hog from the farmer [3], farmer comes to town and buys seed to plant his field [4], seed store fella feels flush and takes his wife to dinner at the hotel [5]. That’s the velocity of money. If the first guy never walks into the hotel the money doesn’t move. Here’s an American twist – the guy comes back downstairs a little later, says he doesn’t like the room, asks for his $50 back. Proprietor hands him his original $50 back.
Meanwhile 5 people got paid for goods and services and we just created a $250 wealth effect from nothing.) So what does all that have to do with the price of housing in Temecula? It helps explain why, in spite of tight money lending, lowered employment expectations and other concerns, as household wealth recovers we are entering a 12 – 15 month period of ‘rampant appreciation’, according to Mark Dotzour,
Chief Economist at Texas A&M’s Real Estate Center. Once new construction kicks in, inventories increase, interest rates rise and the initial pent-up demand is somewhat sated then price increases will moderate without creating another bubble. That’s one theory anyway. But as Allan Greenspan cautioned – remember the first rule of economists: ‘For every economist there is an equal and opposite economist.’ That other economist is predicting another bubble by 2017. You pick.
Gene Wunderlich is the Government Affairs Director for Southwest Riverside County Association of Realtors. If you have questions on the market please contact me at GAD@srcar.org or to keep up with the latest legislative and real estate trends go to http://gadblog.srcar.org/