Friday, April 29, 2005

"Think About Retraining" Construction Workers

You can watch, listen or read the discussion on PBS about the bubbling economy; Dawn McLaren an economist at Arizona State University wonders about a common topic in the valley. "The concern that I have is that most of our job growth is in terms of construction."

"In Las Vegas, for instance we're seeing houses prices 40 percent above what they were last year, an incredible boom going on in prices and in a number of houses being built. And we're going to have to think about retraining some of these people when that huge boom comes to an end."

"I do feel that we do have a little bit of a bubble here, certainly in some areas like Las Vegas it will be a little bit worse. There are things that are threatening to it. First of all, over 20 percent of our market here in the Phoenix area is in investment. Investors have come in, they've come in from California, and they have been (driving) our market."

"It can't go on forever and there are signs that it is beginning to fizzle."


At 12:03 PM, Anonymous Anonymous said...

why do you people hate the idea of every american making a few hundred thousand dollars of profit on their home?

who cares if it is a bubble?

those are REAL DOLLARS.

for fucks sake people, get a life. quit being jealous of everyone else's success

At 12:14 PM, Blogger Ben Jones said...

Is that a Haiku?

At 12:15 PM, Anonymous Anonymous said...

Who is jealous? Many if not most of us here have already made that few hundred thousand and cashed out. That is the only way it becomes "real" money. Why do we care if it is a bubble? Because liquidity driven bubbles are economic distortions which have drastic consequences in their wake. "Real" wealth does not come from inflated assets.

At 12:17 PM, Blogger deb said...

What an insightful comment. For every "few hundred thousand" someone makes, most likely another party has taken on a "few hundred thousand" in debt. A pyramid scheme cannot go on forever. Eventually, there is no one else to come in at the bottom.

Yes, people have profited nicely (myself included), but things are totally out of hand. I honestly wish that I would have just been able to sell my house for a reasonable price and buy something else, but as it is, we are left with no intelligent choice but to rent until the madness subsides.

At 12:17 PM, Anonymous Anonymous said...

Me thinks this is getting a bit too close to home for some people. Anon 12:03 seems to be a bit touchy today...

WRT construction workers, they are just like the computer people in the dot com crash... there will be a surplus of them for years to come, unfortunately.

At 12:18 PM, Anonymous pb said...

Can't be a Haiku - structure isn't right... maybe it's a "Tanka"?

At 12:23 PM, Anonymous Anonymous said...

Anon 12:03,

I'd like to buy a home for my family, but cannot afford it because prices have increased faster than income.

A crash is the only thing that will allow my family to buy a home.

Why won't you let my child have grass to run on?

I'll pay inflated adjusted (based on CPI) prices for your home, using 1995 as a base year. Is this not fair?

At 12:36 PM, Anonymous Anonymous said...

Here's one reason, because the hysteria has artificially distorted the real value and affordability of a home. It is to the point where the only people that can afford to buy a home are trade up buyers, investors, flippers and foreigners. The average citizen can no longer afford to buy even the entry level home. The “American Dream” is no longer obtainable, even with low interest rates. Do you think it is normal when only 10-20% of the population can afford to buy the median priced home.

It is not just the participants of this blog that think we are due for a market correction, it is become quite the topic of debate by industry experts and economists, and is covered by all media formats everyday.

So go ahead enjoy your paper gains, but clean up your language before you post on this site again.

At 12:41 PM, Anonymous Anonymous said...

ditto on the language comment...

At 1:04 PM, Anonymous Anonymous said...

I don't think it will be that bad; most of the construction workers can be deported at the drop of a hat. It's been done twice before.

At 1:09 PM, Anonymous guynoir said...

"Those are REAL DOLLARS"

Kinda. Particularly if you sell. The dollars are as real as those dollars parked in tech funds in 99-00. The problem is that only a small % of homes are being sold at today's high prices, yet everyone who owns a home thinks their home is worth what homes are currently selling for. Yet if everyone decided to sell, prices would come down drastically...just like the stock market in 2000-2002.

I've benefitted greatly from the boom. As a partner in some apt bldgs in NorCal, we tried to sell them in 2000 at the height of the dot-com boom. Vacancies were 0%, rents had doubled in five years. Things were great. We figured people would beat our doors down. But no takers.

Fast forward five years. Our vacancy rate is nearly 10%, highest in about 15 years. Rents are 30-40% lower and there is rent control. Plus the buildings are old and in need of new windows, elevators, etc. We put off doing the work because we figured we were going to sell them.

We put them up for sale again last summer, even with these bad macro numbers. Guess what? Someone offered us 15% over our asking price, which itself was double what we offered them for in 2000.

So I'm not complaining. But that doesn't mean I can't see what is happening. It's not positive except for people like me and others who have found a way to monetize this boom.

Reminds me of the dot-com era. I was running a money-losing publishing biz in SF. With the cost of employees, rent and everything else skyrocketing at the time, I didn't see how I could last another year.

Then along came the AOL-TimeWarner merger in Jan 2000. Everyone was yakking about convergence: old media/new media. That same week I put my biz up for sale and a dotcom bought it for cash. I signed the deal in March of 2000. If I hadn't sold, I wouldn't have gone bust. Instead I got out with money in my pocket.

A number of biz owners I know got greedy. They thought we had a New Economy. They refused to sell when there were buyers throwing money around. They wound up bankrupt. Same with real estate today. This is time to sell, not buy.

There will be a time to buy again in the future. I don't know when that will be. But at some point the numbers will work again---i.e., cap rates for apt bldgs within historical ranges not wildly over the top. They may even undershoot. That's when you buy. Never sell in a buyer's market and never buy in a seller's market. Very simple advice.

At 1:22 PM, Anonymous Anonymous said...

"This is time to sell, not buy."... "Never sell in a buyer's market and never buy in a seller's market. Very simple advice."

Also great advice. In my area, about 100 houses and condos are selling a day. People are in a frenzy. Althought it aint California, we've got our own boom going on. Just like California, people are getting stupid, as usual. They were with the dot com stocks 5 years ago too. Some things never change.

At 1:50 PM, Anonymous guynoir said...

Just to add to my comment about not selling in a buyer's market or buying in a seller's market...

Obviously some people do very well flipping homes in a boom. But many of these are profesisonals. It's one thing for a pro to take advantage of a crazy market, it's another thing for the avg Joe to jump in.

It's the same with stocks. If someone wants to daytrade or swing trade volatile stocks during a crazy mania like in the late '90s, that's OK. A lot of pros did very well. But they knew that it was a big game and they knew they would have to sell to capture their gains. A lot of avg Joes came in very late and bought tech funds for their 401k's thinking they could just "buy and hold." Obviously, a bad move.

It could be even worse with RE since property is far less liquid than stocks. When the stock market turns down, you have many chances to get out (albeit at a loss.) All you have to do is click your mouse or call your broker and you can cash out in 15 seconds.

With real estate, buyers dry up. And it could takes months or longer to get out.

Plus, real estate is far more leveraged than stocks. Even if you buy on full margin, you still are only 50% leveraged.

So if the market drops 20% and you sell, you are out 40% of your seed capital. Since most RE is now leveraged 9-1 (10% down, often less), a 10% decline means you loss 100% of your seed capital (plus sales commissions and any negative cash flow you have had to sustain.)

Big difference.

At 1:53 PM, Anonymous Anonymous said...

I listened to this broadcast last night, while I was reading this blog. Ray Suarez did the interview, with
this gal in Arizona, a guy in the Midwest and another guy in the Mid-Atlantic region. It wasn't anything we haven't already heard........mostly "everything is beautiful, la la la ......"

to anon at the beginning of these posts: chill out. If you don't like what you're reading here, go to the WSJ housing blog. You'll fit right in!

At 1:54 PM, Blogger John Law said...

real dollars?

a dollar is

three hundred and seventy-one grains and four sixteenths parts of a grain of pure silver, or four hundred and sixteen grains of standard silver.”

At 2:10 PM, Anonymous Anonymous said...

As you say, the troll inadvertantly brings up a good point. It may be real dollars, but it's not real money - just the monetization of envy and greed.

At 2:35 PM, Anonymous Anonymous said...

I can't count how many people I knew in '99 with a few hundred thousand on paper that told me they were going to retire at 35 and what a great killing they were making as a day trader or with their options or some other idiotic thing.

Every single one of them today is still working and many said later, "I'll be working till I'm 70..." and various other similar statements. It's definitely NOT REAL until you pull out and stay out.


Someone that's not jealous and is sitting on a pile of cash while renting.

At 3:35 PM, Anonymous ChrisH said...

[WRT construction workers, they are just like the computer people in the dot com crash... there will be a surplus of them for years to come, unfortunately.]

Works for me! I bought a new home three years ago with a bare backyard. I was planning on putting in landscaping, a deck and pool, but with construction materials (wood, concerete, etc) so expensive and a shortage of construction people I figured I'd just wait until this mania stops and get the stuff done for a decent price.

Of course, that is if I don't decide to cash out and rent a house already landscaped ;)

At 4:35 PM, Blogger dryfly said...

Chris H - you beat me to it... my solution for all the unemployed construction workers is to train them to be programmers... then they can all be unemployed together...

...probably have a gov't program teaching laid off construction workers how to program and laid off programmers how to build homes.

It would be funny if it wasn't so damned sad.

At 11:38 PM, Anonymous Anonymous said...

That is the really stupid part about these bubbles. The whole economy spends money in the wrong areas on the wrong things and thousands of people make career plans in the wrong professions. And then we complain that even more manufacturing jobs go overseas !

If we would just stop creating bubbles and get down to real work and saving, we wouldn't have these problems. Greenspan, are you listening ?


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