“Are we there yet?” – Yes, this was the question your kids asked you on your summer vacation trip this year. It is also the question everyone is asking about The Recovery. Are we THERE yet? Or are we starting another Double Dip? Or just limping into the New Normal malaises?
At the moment it appears business folks have simply hit the “pause” button on expanding. Commercial real estate activity is definitely improved over last year and much better than three years ago. But from business people I talk to in all different endeavors, I am told that people started holding off on new efforts about 60 to 90 days ago. Why? 1. It is the fourth quarter of the year, budgets are running out, business plans are being prepared for 2013 and the Holiday Season is fast approaching. 2. The nation is holding its collective breathe over the Presidential Election, perhaps the most pivotal of our life time. I am amazed to hear people say it makes no difference for who they vote, when the perspectives of the two candidates are so diametrically opposed. 3. The so-called Fiscal Cliff looms directly ahead with no change of course to come about until after the Election. What impact will higher taxes make? Or will Congress “kick the can down the road” by extending the Bush Tax Cuts? 4. The Arab Spring has turned into the Arab Fall or Conflagration with new attacks on 9/11. 5. Then there is the Euro Crisis; last year it was Greece and Italy, this year Spain. Who’s next?
6. Then there is QE3, or Quantitative Easing to Infinity and Beyond! I think this is the next big bubble that will pop in a few years, wrecking our economy again. Remember, what a fine job the Fed did in preventing a Y2K collapse? By flooding the economy with money, we had a huge run up in the stock market, the Tech Bubble, then the collapse and Bear Market at the end of Bill Clinton’s presidency. The next manufactured bubble was the housing boom in 2003 to 2006 resulting from low interest rates and government mandated quotas for loans to low income families producing the sub-prime boom and bust. Government intervention in the markets usually back fires, but we never ever seem to learn. (Psst! Presidents don’t create jobs; business people do.) All these things taken together, I think add up to enough reasons for businesses to be Uncertain about the near future to prevent them from making new investments that create new jobs.
Here is an interesting overview of the slide in U.S. land values over the past few years. This is from research done by Co-Star. The Year 2006 was the peak for land sales in the boom at $62-billion in sales nationally. Then came sharp year over year declines. This year will be the first uptick, with a volume estimated at $23-billion, 1/3 the peak. In the run up of values starting in 2002, nationally the average price of land rose 135%, with the highest surges on the East and West Coasts; Texas only ran up half of this average. Land actually rose three times more than house prices and all of those gains have now been given back. That is real volatility. In San Antonio we certainly saw big increases in land prices in the 2002 to 2006 period, and there has been a decline in pricing. But this was nothing at all like the infamous “RTC Days” which saw declines of value significantly greater in the 1980’s and early 1990’s than was seen in the Great Depression of the 1930’s. Presently, foreclosures are way down; the Foreclosure Report that IRC monitors has dropped from 12 pages down to 2 pages, with only a few significant properties now on the list. But transaction volume is still half of what it was several years ago. My conclusion – we are There, the real recovery and I think we will hit the Acceleration Phase after the Election. As Betty Davis said, “Buckle up, its going to be a bumpy ride.”