Perspective on Real Estate

December 5, 2002

December 11, 2002

January 8, 2003


Not much optimism for 2003

We met again in that "magic place" when strategic planning for the next presidential election, handling of the economic reality and polls reach a point of confluence which rivets focused attention on the part of anyone interested in that coming election. Thus two top economic posts are replaced, with a sheepish smile if not embarrassment -- as if a national politician can ever be embarrassed by being wrong or stupid, unless his or her name is Clinton and they have more enemies than poison ivy.

The impact on real estate will be in terms of what interest rates will become reality the coming new year; if interest rates rise, it will turn off the spigot of home refinancing as well as raise monthly payments and affordability calculations on home ownership. The calibrations are coming out of the minds of the administration's new economics team, which looks so much more experienced and better than the former one. The new one will have the confidence of Wall Street. However, if their preoccupation will be in tax cuts, then you can depend on higher rates and far more dangerous deficits. The massive tax-cut is a classic "hoist with one's own petard."

There is little common sense in any government as they fight for political victory and go with the fickleness of polls that can be very incorrect. The keys to victory will be to convince the voters that they care for them, that the tax cuts are not completely for the wealthy, that new jobs will be the key preoccupation (stupid), that interest rates will not be allowed to rise too much, and that a war will neither be inevitable nor too costly in casualties and debt.

The fools always cry that this is such a tiny portion of the total economy that it is meaningless. But that is pigheadedly incorrect for both this state and nation. While the math may appear to be correct, there is a psychological damage that wars tend to produce, and that's not counting the new risks of terror and warfare distributed upon civilian populations.

There is also the question of shortages of materials plus how many people are mobilized, both of which will affect the economy of regions and the country, particularly the various rental markets and retailing. San Diego would be particularly affected by the military call-ups.

The November national and regional employment pictures were especially shocking to the experts, who had expected that the jobless rate would begin dropping (while I thought the opposite). The fact is that 117 of the 194 metropolitan areas had higher unemployment rates, along with 20 unchanged areas. Of the 51 largest metropolitan areas, San Jose had the highest jobless rate in October at 7.9 percent, with Sacramento also showing a large increase. The highest buildups of new jobs included Las Vegas, the Inland Empire area of Southern California, and San Diego. The manufacturing sector reported its 28th straight month of job losses.

The median price of resale homes continued its moon-shot, as land and inventory shortages kept their intensity. The largest increase was in Orange County, but San Diego's inflation also was high.

In conferences at which I spoke recently, my conclusions were that housing would continue its extraordinary power, while upper apartment rental costs would continue to soften, land prices would inflate, commercial rents would soften, and retail sales -- while having mixed results during the holidays -- would be reported as disappointing in department stores but decent in discount operations.

Those making projections for the coming year have gone through a rethinking process of reduced expectations and hope for a solid election year. We'll see. Volatility does not ever produce clarity, and contributes to the taste of broken glass from shattered crystal balls. I see no stabilizing forces at work in the world. Discomfort is our present way of life.

Goodkin has been a business ethicist and housing analyst since 1956. He may be reached at sanford.goodkin@sddt.com.


December 5, 2002

December 11, 2002

January 8, 2003