Some of the
other truths about our national and current Sandpoint, IDaho
economy
By Gary Lirette,
host of the North Idaho Business radio show on KSPT and KBFI,
economic researcher, and REALTOR® for Tomlinson Sandpoint
Sotheby's International Realty
From Reuters
Consumer sentiment rises in June: survey
NEW YORK (Reuters) - U.S. consumer confidence rose in June to the
highest since February 2008, as expectations grew that the worst
economic recession since the Great Depression may be ending, a
survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its
final index of confidence for June was at 70.8 from 68.7 in May,
equaling February 2008's reading.
This was above economists' median expectation for a reading of
69.0, according to a Reuters poll.
The index of consumer expectations edged lower, though, to 69.2 in
June from 69.4 last month.
Since the November 2008 low of 55.3, the sentiment index has
gained 15.5 points, recouping about one-third of the loss posted
since the peak in January 2007.
"Such a sizable gain has usually indicated that an end to the
economic downturn is on the horizon, as consumers begin to
increase their spending on houses, vehicles, and large household
durables," the Reuters/University of Michigan Surveys of Consumers
said in a statement.
From IStockAnalyst.com
(After rising 2.9% in April, a steady trend is emerging that shows
more than a fluke in increases over 2008, and few think this year
is better than last, but numbers indicate otherwise.)
Home sales on the rise
Existing home sales are expected to rise 1.7% to 4.850 mln units
in June following the 2.4% rise in May that left sales at 4,770
mln units.
While sales continue to exhibit a saw toothed monthly pattern
from, activity does appear to have formed a bottom.
The pace of sales is slowly moving back up toward the 4.86-5.06
mln range seen in all but one of the thirteen months ending in
October, before the accelerated collapse in global financial
markets ratcheted the housing data to new lows
The NAHB slipped to 15 in June from 16 in May, but remained well
above the all-time low of 8 in January.
The PHSI edged 0.1% higher in May following the 7.1% surge in
April.
We expect residential construction to decline at a 33% rate in the
Q2 GDP report that would still fall short of the peak-rate of
decline for this cycle of 39% in Q1, following a smaller 23% rate
in Q4.
We anticipate a 2.5% drop in Q2 GDP following the 5.5% decline in
Q1.
Reported on NPR of the AP
(Also reporting Retail Sales as well as inflation being up in
June)
Industrial Production Down Less Than Expected
AP,
July 15, 2009 · Industrial companies cut back production yet again
in June but not nearly as deeply as they have been, another sign
the recession may be easing its grip.
The Federal Reserve reported Wednesday that output at the nation's
factories, mines and utilities fell 0.4 percent last month as the
recession crimped demand for a wide range of manufactured goods,
including cars, machinery and household appliances.
The decline, however, was not as bad as May. Industrial activity
posted a revised 1.2 percent drop then, which turned out to be
slightly worse than first reported.
The contraction in industrial activity last month was less than
the 0.6 percent decline that private economists were projecting,
although it marked the eighth month in a row of production cuts.
For the second quarter as a whole, industrial production fell at
an annual rate of 11.6 percent, not as sharp as the 19.1 percent
annualized decline experienced during the first three months of
this year.
The recession has taken a bite out of demand in the U.S. for all
kinds of manufactured goods, especially those related to housing,
such as appliances, furniture and building materials. At the same
time, factories are coping with less demand from foreign buyers
coping with economic problems in their own countries.
Given crimped customer appetites, industrial companies idled more
of their plants and equipment in June. The overall operating rate
fell to 68, a record low dating to 1967. The previous low of 68.2
was in May.
Troubles in the auto sector probably will factor in June's
weakness.
Plant shutdowns at Chrysler and General Motors, which both
recently emerged from bankruptcy protection, are expected to weigh
on factory production through part of the summer, analysts say.
Another view
of our current economic future
Recently, I
attended a lecture by Anthony Grasst, a very astute MBA who runs a
mortgage division of MetLife. It was gratifying to hear words of
wisdom that offered another view of our economy besides the doom
and gloom one hears on the radio waves or sees on the tube.
Graast explained
that the job losses after the dot.com boom/bust and 9/11 was, if
not worse than we are having now, at least comparable.
According to
E-commerce News, 2001 went into the record books as the most
devastating year in terms of Internet jobs lost.
In an article
released in 2002, "For the year (2001), 100,925 positions were cut
-- about 250 percent higher than the 41,515 cut during all of
2000, when the dot-com shakeout began in earnest."
Figures were much
higher than that according to ComputerWorld.com, spanning many
sectors and totaling over 2 million job cuts for 2001.
True numbers are
often fleeting. Certainly hundreds of thousands lost jobs from the
dot.com debacle, and probably millions. Post 9/11 job losses were
also staggering. Our current recession passed that benchmark for
total job losses in November 2008. Still, many forget we had these
two recent large downturns in employment: the dot.com bust and
9/11. We recovered.
There is no doubt
we experienced a double whammy. As our national economy began to
recover from the dot.com bubble burst, 9/11 sent us right back
down the tube. Yet we recovered.
In fact, the
financial losses from these two events may have been even worse
than our current crisis, with many experiencing greater losses
because the stock market affected more real wealth in much greater
fashion than today.
According to
Wikipedia: "Several communication companies, burdened with
unredeemable debts from their expansion projects, sold their
assets for cash or filed for bankruptcy. WorldCom, the largest of
these, was found to have used illegal accounting practices to
overstate its profits by billions of dollars. The company's stock
crashed when these irregularities were revealed, and within days
it filed the second largest corporate bankruptcy in U.S. history.
Other examples include NorthPoint Communications, Global Crossing,
JDS Uniphase, XO Communications, and Covad Communications. Demand
for the new high-speed infrastructure never materialized, and it
became dark fiber, impacting companies such as Nortel, Cisco and
Corning, whose stock plunged from a high of $113 to a low of $1."
It wasn't only internet and tech related companies that caused
national financial pain. Who can forget Enron?
The financial
losses from 9/11, hurricanes Gustav and Katrina, and other
disasters during the Bush administration, as well as the true
costs of the war in Iraq, have some comparisons to our dismal
condition today. While the press appropriately covered these
disasters, the overplay and total consuming coverage of today's
crisis makes those pale in comparison.
For those trying
to buy homes, money is tight. However, according to Grasst,
liquidity is changing. True liquidity right now is not as tight as
the press would have you believe. Stated Grasst, "The money supply
has increased by 20% over the last few months, but takes 6-9
months to show in the market."
The message
Grasst related in his lecture was that financing is available; you
just have to have a job, pay your bills, and you can't lie. What a
concept. Other sources of money have become available from
companies like MetLife, which came into the credit and mortgage
business in 2007, after all the bad loans had already been made.
Other revamped sources are the loans from the USDA that has
revised its rules, making their loans a great alternative. Most
local and Inland Northwest banks for the most part did not make
the kind of questionable loans that put other banks in jeopardy,
according to Jack Dyck V.P. and Regional Sales Manager for
Mountain West Bank in Sandpoint.
Our problem, it
seems, is that we have become a society that expects instant
gratification; we demand results that occur instantaneously. The
Great Depression lasted at least six years, from 1931 to 1937.
While one can argue that the stock market is responding to
President Obama's policies and actions, only those born yesterday
would not reason that these problems and issues were years in the
making. How sad we as adults and intelligent Americans, so
educated to instant gratification, now believe that in just sixty
days in office, one man can fix what we as a nation took years to
bring to fruition.
Grasst pointed
out that according to the press, our banks and financial
institutions are broken, much like the Great Depression. The Great
Depression had four years of banks going broke. We have had one.
The stock market lost 90% of its value during the Great
Depression. Currently our losses are at 40-50%. In both cases,
stocks were extremely overvalued. Remember when the stock market
first broke 7,000, then 10,000. As a younger investor fresh out of
business school, I didn't think I would ever see 10,000. After
all, the market had hovered between 500 and 1,000 from the late
1950s to the mid 1980s. Then, for ten years it was between 2,000
and 3,500. The remarkable run up to 14,000 points took place in a
little over ten short years. (See this historical chart) One could
say the same happened to home values. Too much, too fast? This is
the opinion of many economists.
Job losses hurt,
but a more important factor is consumer spending. While seven or
eight percent unemployment is caustic, keep in mind we still have
92% employed: consumer confidence is key.
Grasst states, "Changing the sentiment of the public, and in my
business of real estate, the most important thing we can do is to
educate buyers. We are close to the bottom when it comes to home
prices. Has gas begun to go back up?"
"Recently, about
two months ago, we were informed we have been in a recession for
over a year. Were the pundits a little bit behind on that info?"
So, where is the
bottom? Yahoo Education posts the United States population growing
at an annual rate of .92%, though other sources quote .88%
annually, with Wikipedia putting the number closer to 1%. With a
current population of over 306 million, this increases our
population by 3 million every year. This puts US housing needs
well above our current levels of construction.
Chris Kaucnik,
former marketing director of the National Association of
REALTORS®, on February 11, 2009 wrote, "The average number of
months for inventories to fully shift during this 56 year period
is 35. Optimistically, we could be entering the downward curve of
the bell beginning in the second quarter of 2009, especially with
some added government incentives." See this article published by
RIS Media written by Chris Kaucnik, currently director of
marketing for Home Warranty of America, Inc.
Current numbers
in North Idaho around Sandpoint back up the premise that our
inventory is low, or at least at normal levels. According to the
Selkirk Association of REALTORS®, closed sales of homes, condos,
and townhomes for 2004 was 1,241 units, 1,190 units in 2005, 920
in 2006, 936 in 2007, and 605 in 2008. Certainly there is strong
evidence for up to 1,000 homes a year to be available for our
market's growth. We currently have 1,097 residences for sale. Are
we oversupplied? It doesn't take a statistician to divine we
currently have a one-year supply of housing. Last year, in spite
of declines in pricing coupled with low interest rates, we saw a
substantial decline in sales. We all know the reasons. How long
can a downturn last for an area that is touted as the next Lake
Tahoe? Predictions make sense for having a better year than 2008.
(The Selkirk Association of REALTORS® deems these numbers
reliable, but not infallible.)
Unemployment is
another great concern. Spokane just hit 9.6%, (Reported by the
Spokesman Review on February 24, 2009) so our local figure,
basically matching current national levels at 7.8% is a bright
spot. (Figure taken from the February Newsletter of the Idaho
Department of Labor) This is due in large part to our
manufacturing base. While many think of Sandpoint as a tourist
economy, tourism-based employment is actually in fourth position,
behind manufacturing employment (See this Bonner County Profile
published by the Idaho Department of Labor)
With such a
diverse employment picture, coupled with our continued success as
a tourist destination, the needs for more homes available outweigh
the bleak national picture. To date, our units sold for this same
time period year over year is the same at 79 sold. However, our
market is already ahead of last year's figures by $3,000,000, and
the average sold price is up by almost $54,000 per home. Even the
median sold price has increased by $35,000. Any way you look at
it, thus far we are ahead of 2008.
This brings up
another great worry for potential buyers of real estate in the
Bonner County area of North Idaho; that is the concern that if
they buy now, they could be upside down in their purchase very
quickly. Many of our buyers are coming to North Idaho from parts
of Arizona and California; places that have seen declines of up to
fifty percent. According to the OFHEO's Home Price Index, the
United States saw a decline in home values of 4.5% for 2008.
Washington State declined 3.7%, Idaho lost 1.76%, Spokane at
1.26%, and the closest community to Sandpoint that was measured,
Coeur d'Alene, went down 4.45%. Our own numbers showed a decline
of 4.4% for 2008. With predictions taken into account, many
economists are predicting this trend will change in the Inland
Northwest by the end of the year. The most consistent economist
giving analysis about North Idaho has been Jeff Thredgold, CSP and
self-described economic futurist who puts out quarterly info for
Zion's Bank. His prediction for Idaho is a turnaround by the
latter half of 2009. (Read his Winter Predictions)
Still, even if
North Idaho housing values decrease by a couple of points, many
REALTORS® point out homes are at the best price levels in years.
Another factor
comes into play. Interest rates are at an all-time low. (See this
news report from CBS) Tony Grasst points out, "Every one percent
saved on interest rates translates to a 10% savings in value. So,
when the Fed gets out of the mortgage business in June, we will
probably see interest rates go up. We have artificially low rates
currently." Just Google the keywords 'Artificially low interest
rates' and you can find zillions of articles on the web. Will
rates go up? Probably. So, if buyers are buying homes at reduced
prices, with incredibly low interest rates, does this mean it is
the right time to buy? These indicators arguably point to a
favorable yes. Does this mean it will be a bad time to buy after
June? Interest rates historically begin to rise slowly. So,
towards the last two quarters of the year, prices and interest
rates will still be at historic lows. This suggests 2009 to be one
of the best years to buy a home this decade.
Checking today's
interest rates, buyers can expect to get a rate between 4.85% and
5.17%. If we believe some of the predictions for next year,
interest rates could be between 6.5 - 7%. Certainly the Fed
doesn't have much room to move rates down with the Federal
Discount Rate at ½% and the Federal Funds current target rate of 0
- ¼%. Can you say, "Less than zero?" If rates do approach 7% by
2010, the real cost of buying a home could be 20-25% higher than
today, even if the selling price remains the same. Put into
perspective, a $300,000 loan at 4.85% for thirty years will have a
total payout of $569,000 and a monthly payment of $1583.00. Change
the rate to 6.85% and the total payout changes to $707,000 and the
monthly payment to $1965.00. In real terms the amount payed to the
bank would be $138,000 higher. Could you put a child through
college for that additional amount? Even in a smaller, but still
significant way, paying an additional $382.00 a month could put
many buyers out of the market.
In conclusion,
what is the truth about the economy? Numbers seem to be skewed for
the highest possible drama by politicians and the national and
local media. Looking closer, while times are disconcerting to some
and devastating to others, the truth seems to be a more mixed bag.
Certainly, we have been here before, and not so long ago. Locally,
we are faring considerably better than other parts of the world.
What is our job and commitment to our community? Personally, I
believe it is our task to cut through the maligned figures and
malaise, give out real numbers, and continue to work towards
making our community what it is: the best place to live in the
world.
Gary Lirette,
host of North Idaho Business and North Idaho Arts and Adventure on
KSPT and KBFI, economic researcher, and REALTOR® for Tomlinson
Sandpoint Sotheby's International Realty.
To learn more
about Sandpoint, Schweitzer Mountain Ski Resort, and our North
Idaho Panhandle Paradise, visit
Tomlinson Sandpoint
Sotheby's International Realty
200 Main Street
Sandpoint, Idaho
208-610-1384
800-282-6880
Gary
Lirette,
REALTOR®
& host of the radio shows North Idaho Business
as well as North Idaho Arts on KSPT & KBFI in
Sandpoint & Bonners Ferry. When you need your real estate questions
answered...
Gary Lirette & Jed Sigman, your 24/7 N Idaho REALTORS®
for real estate in Sandpoint, Hope, Sagle, Schweitzer Mountain
Ski Resort, Naples, Careywood, Athol, Cocolalla, Ponderay,
Kootenai, and all parts of North Idaho.
