No Reality to the Real Estate Recession

When is a recession NOT a recession? When the definition of economics can be changed to fit the politics of the day, that’s when. How can the “country” be in a recession when so many companies are reporting great growth? Consider these headlines from the Wall Street Journal:

• Visa Inc.’s fiscal second-quarter net income rose 28%, as the credit-card transaction processor posted its first quarterly report as a public company. by ANDREW EDWARDS April 28, 2008 5:00 p.m.
• International Business Machines Corp. posted a 26% jump in first-quarter profit, supporting investors’ hopes that corporate spending, especially overseas, may be a bulwark against the deteriorating U.S. economic picture.
• Apple Inc.’s iPhone and iPod get most of the limelight, but it was the company’s decades-old Macintosh computer business that defied a broad slowdown in consumer spending to deliver a 36% increase in profit.
• Caterpillar Financial Services Corporation (Cat Financial) today reported record first-quarter revenues of $779 million, an increase of $66 million, or 9 percent, compared with the first quarter of 2007. First-quarter profit after tax was $124 million, a $1 million, or 1 percent, decrease over the first quarter of 2007.
• Oak Brook, Ill.-based McDonald’s Corporation, part of the Dow Jones Industrial Average, said it earned $946.1 million or 81 cents a share, up from $762.4 million or 62 cents in the first quarter of 2007. Foreign currency accounted for 5 cents a share of the latest quarter’s bottom line, the company said.

So, let’s see: A Credit company, a computer company, a consumer goods company, an industrial equipment company, and a discretionary food-services company. All of whom are both national and international players. Hmmm… what’s going on here?

What about unemployment? Let’s see:

• April 25, 2008 NEW YORK — Prices of U.S. Treasury securities fell Thursday after a government report showed a surprising drop in unemployment claims. In late trading, the benchmark 10-year note was down 25/32 at 97 11/32 to yield 3.83%. Investors have been concerned about the weak economy’s effect on the labor market, and became a little less worried after the U.S. Labor Department said initial claims for unemployment benefits fell by 33,000 to 342,000 in the week ended April 19. Economists had expected the claims to rise by 3,000.

Well, that has nothing to do with real estate, you might argue. Isn’t there a real estate recession? The market is still down the tubes, right? At least that’s what all the reports and insiders say. But let’s ask a few questions:

First, if the market is so bad, wouldn’t real discretionary income be down? If everyone’s savings are tied up in their home who has the money to drive Apple’s profits up in discretionary purchases of entertainment, or consumer credit card purchases, which must be at the heart of Visa’s profits? If times are so “uncertain” wouldn’t you expect consumer credit issuers and recipients to be issuing profit warnings? How can they be reporting “record” profits if the consumer is spending all of his money on the so-called expensive price of a gallon of gas?

Second, who’s lending all the money for capital spending – certainly farm equipment and construction equipment aren’t purchased on a Visa credit card? So somebody is lending somebody money to fuel Caterpillar’s growth… could it be that some projects still have a profit possibility and some banks aren’t having so much trouble lending to credit-worthy developers?

Third, if the real estate market is really stuck – if prices are falling and buyers “report” that they are going to “wait until prices fall lower” then why did the house next door to me sell in under 2 weeks? And it’s not the only one. Here’s a few quick Trulia trends (because I couldn’t find it anywhere on a REALTOR site… but that’s another story…)

The working neighborhoods are selling just fine:

Upscale towns seem to be fairly healthy, too:

And the “working class big city neighborhood” is a fair view of the non-devastation of Boston’s market:

Certainly, many other towns could be selected; some would certainly show deep declines – like Lowell or New Bedford or Roxbury – but many others would be equally stable or even growing. So it’s all about averages, then? If we average them all, we get a “net” positive or net negative market trend.

Still, I don’t buy it. It can’t all add up to a crisis for the average homeowner at the same time there’s a boom in consumer credit and discretionary spending (and no, it wasn’t the so-called stimulus checks because while they may be stimulating “some” of us to spend money we never earned, it had to come from the “others” of us who have had to curtail our spending since our Uncle robbed us…)

Could there be two economies? One that’s booming while another is failing – and that’s the one that the media love to harp on? No, that’s not possible, because Visa, Apple and McDonald’s are in every marketplace, so they would be effected by the down and the up economies. If the overall “net” effect is supposed to be down, how could they still be up?

Maybe something else is going on. Maybe some homes are selling – despite the so-called recession, and perhaps by and to the people who work for the profitable companies? Looks like some REALTORS know how to price homes in any market to attract the qualified buyers in any market. Looks like not all markets are in crisis; not everyone is in foreclosure; and not all banks have halted lending.

Too bad nobody’s telling this story – most of all, a million REALTORS aren’t saying a word about it…