Perspective on Real Estate

October 9, 2002

October 10, 2002

October 17, 2002

Jobs more of a threat than a 'bubble'

As the economy appears to be heading downward, real estate will continue to slow, which isn't all bad. While there is volatility to the daily stock meanderings, real estate behaves in a more predictable manner.

Don't subscribe to the fears that there is a "bubble" somewhere out there, like a strange Martian bacteria infecting marketplace with a gurgling inflation that is more psychological than real. It is important to understand that the marketplace behaves subject to the supply and demand for homes, rentals and space in general, rather than the hype promoted by the conflict between value and analysis as in stocks.

Right now the market is resting between cycles, since inflation has been too constant and long-lived, with prices, costs and rents making mega-leaps which cannot nor should not last. Heat always attracts more people into a market because so many people brag about how much of a killing they have made.

So why not get your piece of the action?

Exaggeration is always part of a hot marketplace, combining what was supposed to have happened with what actually has happened. Transparency is hyped as being able to see the numbers which spell out the measurement of the action. It is not always as it appears. More important is what do the numbers mean? Is the market being overbuilt? Is there too much money chasing too few products? Is the percentage of speculators passing the 15 percent mark? Is the region attracting net new jobs or is the pace of new job formation falling? These are the questions with which I am preoccupied as I examine the historic norms and possibilities of a region.

No matter what the brilliance of the Southern California economy, it is still connected with the national and the super-regional economic marketplace, especially as it has to do with new job jobs. This is proving to be a "jobless recovery", which is bad news, in that the "protein" is missing, the juice, the energy. The fat is being consumed and sophisticated forces realize this more and more.

For example, in examining the state's regional marketplaces, I note that new jobs, based on the latest August figures, continue to fall in Bakersfield, Los Angeles/Long Beach, Oakland, Orange County, Sacramento, San Francisco, San Jose, and Santa Rosa.

There has been continuing net new job expansion (at a very reduced pace) in Riverside/San Bernardino (Inland Empire), because of its exceptional logistical force, i.e location and connectivity with other major marketplaces.

San Diego is also continuing to prosper because of its climate, universities, quality of life as well as life style, though awfully short in terms of infrastructure-its critical weakness. The airport is cute but critically inferior to a mega-regional economy. If Mexico learns to play its cards right, it can steal some of our thunder as we Rip-Van-Winkle our way through this new century of possibilities.

Other major western regions are also showing the problems of economic slowdown, like Phoenix, Tucson, Denver, Portland/Vancouver, and Salt Lake City and Seattle. I see no quick turnarounds, as profits, earnings and markups will continue to erode-- each affecting commercial, retail, industrial and residential real estate in their own particular manner.

I look at the federal government's response to this erosion and am sickened by its unresponsiveness. I read again about the history just before the Great Depression and notice growing similarities in the politicizing of everything that has to do with the future economy. The politically inspired apologists are blinded by their partisanship and that hurts all of us. History is a great teacher if there are learners around. It's too bad that leaders, managers, and economists cannot be forced to learn from history while there is still some time remaining for change and action. Too bad.

Goodkin has been a business ethicist and housing analyst since 1956. He may be reached at

October 9, 2002

October 10, 2002

October 17, 2002