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Tag Archives: Economic

Predicting the Real Estate Market

1. Base Industry 2. Support Industry 3. Residential 4. Retail

Economic Base Theory holds that basic industries and support industries are requisite for the population growth that spurs residential and retail development.

When I wasn’t watching the rat race or helping prepare for the educational events at the Dallas conference this week, I was taking notes on what the speakers were saying. My biggest takeaway was to learn about economic base theory (EBT). Economist Robert Murray Haig first put forward the theory in 1928. It essentially says that jobs lead the economy both when it is getting stronger and when it is getting weaker. This is something that we all have intuited, but it was good to have this feeling stated overtly and have the underlying science behind it explained.

I won’t go into all that, but I do want to provide the sequence and define some of the terms used in the theory.

EBT holds that development happens in a specific order for specific reasons.

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Tax Plan Update: Corporations vs. Pass-Through Entities

Scissors cutting the word TAX

The language of the current tax proposals is changing daily, if not hourly. The Senate plan currently has any benefits accruing to the middle class or small businesses expiring by 2025. Why? Why do you think?

No matter which party is in power, I’m always nervous when they start meddling with the tax code. Everybody agrees that we need tax reform; it’s just that we can seldom get two people to agree on just how that reform should look. If you ask three members of Congress, you’ll get at least five answers.

The “tax cut” bill currently before the Senate dramatically favors large corporations over the middle class and small business. As Gary Cohn, President Trump’s Chief Economic Advisor, said, “When you talk to all the CEOs — they’re the most excited about this.”

Why Is That?

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The Money Value of Time

Red Gasoline Can

If you do need to wait in long lines to stockpile gasoline, please use a safe container.

Time: the only non-renewable resource you have. Once it’s gone—no matter how you spent it—you’ll never get it back. That’s why the answer to the following question is so important:

How much is your time worth?

It’s a question we don’t think about very often, and when we do we usually get the wrong answer. We often spend our time rather than our money, even when it doesn’t make sense to do so. My dad would spend a couple of hours to save a couple of bucks. “I’d rather that money be in my pocket than theirs.”

But what he was really saying was that his time was only worth about a dollar and hour. Continue reading →

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Water, Water

Water running from a bathroom faucet

We have running water again in Cameron today, but it’s still not safe to drink.

We take running water for granted. What happens when we don’t have any? We found out a little about the issue that faces much of the developing world yesterday.

Yesterday morning, a construction crew hit the main water line in Cameron and left most of the city without fresh water for most of the day. The city workers strove to restore service as quickly as possible and had water restored to most of the city sometime yesterday evening. But as late as this morning, the water wasn’t safe to drink, and the city was flushing the lines—pouring hundreds of thousands of gallons into the ditches that feed the local rivers and creeks.

Most of us have experienced a water outage like this one. We know how it directly affects us:

  • We have to buy bottled water to drink or make coffee.
  • Toilets only have one reserve flush.
  • Our yards get a little browner, and our gardens may wilt.

But we may not think about the economic consequences of a water supply interruption. I’ll give you one specific example. Most of the restaurants in Cameron were unable to open for business this morning. The ones that were open were in buildings that predate the city water supply and have their own wells.

Restaurants require a safe water supply to cook. Besides that, “Employees must wash hands….” How do they do that without water? Continue reading →

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Prognostications

Dr. Yun is a surprisingly entertaining and candid speaker. The future will be very good or disastrous. I think both because it always is.

Dr. Yun is a surprisingly entertaining and candid speaker. The future will be very good or disastrous. I think both because it always is.

I recently attended a short lecture by Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research for the National Association of Realtors®. He explained why pundits of all stripes get it wrong so much of the time. “The only thing I can predict with 100% accuracy,” he said, “is how old you will be 10 years from now.” I’ll give him the unspoken caveat, “if you don’t die.”

He then went on to make a series of predictions, many of them based on age demographics, about the short-term future of the national real estate economy. And while real estate is a local business, all local markets are informed to some degree by the national economy. In Austin’s case, the two are remarkably parallel based on Dr. Yun’s data.

Here are some of my take-aways from the lecture:

  • We’re past due for a correction, but the indicators don’t point to one any time soon.
  • Rental markets are probably going to remain strong for the next few years.
  • Older populations remaining in their houses longer are one factor in tight inventory. So are millennials staying with mom.
  • New home starts are inadequate to stabilize inventory, but drive up the cost of existing inventory in several ways.
  • About 20% of millennials skip renting and go straight to home ownership.
  • Interest rates will rise, but so what?
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