From a small northwestern observatory…

Finance and economics generally focused on real estate

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Meet my new neighbors!

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The Puget Sound Business Journal just revealed that Facebook is about to lease 1.3 million square feet in Seattle’s exploding South Lake Union neighborhood.  I might add that Expedia is moving from nearby Bellevue into a new campus in the Interbay Neighborhood (to the northwest of the map below).  They will occupy the 750,000 SF waterfront site formerly used by Amgen, but will add about 200,000 SF of new space to house up to 9,500 staff.  These announcement would be huge for any other top-20 market, but Seattle has it’s 1000 pound gorilla in the form of Amazon, which occupies a stunning 8,100,000 square feet, almost 20% of the downtown office space.  By the beginning of the next decade (that’s in about a year, folks), Amazon will employ about 55,000 people in my immediate neighborhood.

Facebook and Amazon

The attached map is courtesy the folks at the Seattle Times.  It’s about a year old (I’m too lazy to spend anymore time on this — journalists do great work.) but still more-or-less valid.  It is simply astonishing how much space Amazon occupies in one city.  For reference, in NYC, the biggest single private sector tenant is Citi, with only 3.7 million SF.  As for dominating a percentage of the skyline, Amazon’s 19.2% is also in first place, with the next highest being Nationwide Insurance which occupies 16% of downtown Columbus, OH.

This is even more stunning when you think of how many brand names are in Seattle or the Seattle suburbs — Microsoft, Boeing, Costco, Paccar (they make Peterbilt and Kenworth trucks), the Russell Group, Starbucks, Weyerhaeuser, Holland America, and T-Mobile, to name a few.  Add to that the Port of Seattle, which provides thru-put for Washington’s huge agriculture industry, and the associated expeditors, and hopefully you get the point.

I try to keep this blog from being too parochial, but it’s hard not to admit that Seattle is a pretty cool place to do business.  However, this comes with some drawbacks.  Morning commutes can be brutal — we have some of the worst traffic in America, and it’s getting worse by the day.  Rents are going thru the roof.  We are geographically constrained and the soil conditions make construction astronomically expensive.  Eight or nine months of the year, the weather is retched (but truth be told, it’s the most beautiful place in the world in the summer time).   The cost of living here is awful.  That said, the Creative Class, as the urban economist Richard Florida would call them, flock here by the bus load.  There is a lot to be learned from how we do things here.

 

Written by johnkilpatrick

November 29, 2018 at 9:27 am

Posted in Uncategorized

Happy Thanksgiving, everyone!

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All of us at the Kilpatrick family, and from our extended family at Greenfield, wish you and yours the best of holidays and a great holiday season.

With that, I want to take one minute for business — here is a post from yesterday on my sister-site, ACCRE.COM.  I hope some of you find this useful.  Best wishes —

Written by johnkilpatrick

November 22, 2018 at 10:09 am

Posted in Uncategorized

Homebuilder Confidence Slides

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The NAHB / Wells Fargo Homebuilder Confidence Index slid from 68 to 60 in a report  just released this morning.  This index is a composite of current builder expectations, buyer traffic, and 6-month sales expectations.   While a reading about 50 is considered positive, this drop — to its lowest level since 2016 — is widely considered a bearish indicator.  The monthly drop is the greatest since 2014.

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This announcement contributed to a down stock market open this morning, and with good reason.  Most investors do not appreciate the degree to which homebuilding permeates the broader economy, in terms of both direct expenditures (building supplies, equipment) and secondary and tertiary effects (payrolls, land investments, permitting and fees, insurance — the list goes on). Economists estimate that homebuilding contributes about 15% to 18% to overall GDP.

New home construction tends to be skewed toward first time buyers, and the shortages of such buyers has plagued the market for some time now.  This signal suggests demand is seriously worsening.

On the positive front, commercial real estate looks pretty good this morning.  My sister blog, ACCRE.COM, will have some commentary on that later this week.

Written by johnkilpatrick

November 19, 2018 at 7:33 am

Posted in Uncategorized

Political picture of America

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I tend to avoid political commentary on this blog, save for issues concerning the economy.  However, this morning I stumbled on some data — or more specifically, data presentation — which will be of interest whether you are a republican, democrat, or something else entirely.

Robert Allison, writing on the SAS Learning Post this morning, has a great piece titled, “Building a Better Election Map“.  Allison notes that we are all confronted with a congressional election map that looks something like this:

us_congressional_map_2018

This is misleading on a lot of levels.  From a republican perspective, it implies that they still have control of the vast expanse of America.  For democrats, this map makes them question whether or not they really took control of the House of Representatives.  It’s simply not a good way to combine the population distribution of the U.S. with the data on House representation, which is supposed to be apportioned according to that population distribution.  Allison experimented with a number of formats, and ended up with a great interactive map that divides the U.S. up into 435 equal sized representational images and then color codes them according to the current representation.  Note that this map also shows where “flipped” seats happened this year.

us_congressional_cartogram_2018

Well, ain’t THAT neat!  This immediately lets the reader see where geographic trends are happening.  Several interesting pieces of data come out instantly.  For one, Texas is “bluer” than one might think.  Second, the largest number of republican-to-democrat flips happened in pivotal Pennsylvania (not in California, where one might have thought listening to the newscasts).  Third, the old Confederacy is a lot “bluer” than one might have thought, with democrat-to-republican flips happening in Virginia (2), South Carolina, Florida (2), Georgia, and Texas (2 thusfar).

As noted, Mr. Allison’s work is interactive, and I highly recommend you read his entire piece.  It’s a great article on both politics as well as data representation.

Written by johnkilpatrick

November 15, 2018 at 6:25 am

Why things suck

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OK, there are a lot of things that suck right now, but I’m going to focus on the major malaise in the economy.  If unemployment is, as we are told, better than it has been since the time of the Holy Roman Empire, and the stock market is at an all time high, too, then why do we feel so sucky about things?  Where’s the beef?

Here’s a bit of the problem.  Following WW-2, millions of service members came out of uniform, got blue and white collar jobs, bought houses in the ‘burbs, bought new cars every few years, TVs, all the appliances, occasionally bought new, larger houses, and lived the good life.  Middle Class in America was pretty good.  Not everyone was there — we had a lot of poverty and racial strife — but still, if you made it to the middle class, you had something pretty good.

Today, though, the middle class seems out of reach for a lot of Americans.  Poverty seems to be growing, rather than shrinking, and it is nearly impossible for a single-wage-earning household to make ends meet.  Home ownership is increasingly out of reach for young families.  Indeed, the proportion of home buyers who are “first time buyers” is unsustainably low.

I took a look at some data from the Bureau of Labor Statistics this morning, dating from 1947 all the way to the present.  It’s simple stuff — real hourly wages (that is, hourly wages after accounting for inflation) versus inflation itself.  Not surprisingly, real wages have actually gone up.  The trend is positive and substantial.  People SHOULD be feeling pretty good.  As you might suspect, real wages and inflation tracked one another after WW-2.  This meant that every year stuff got more expensive, but your income kept up with it.  If and as you grew in your job and got promoted, you’d make more money.  However, if you kept the same job for your entire career (as many in the middle class did), then at least you’d keep up with inflation.

Why Things Suck

Data courtesy U.S. Bureau of Labor Statistics

 

However, all that got broken sometime in the mid-1970’s.  Inflation hit the U.S. like a ton of bricks.  Real hourly wages continued to rise, year in and year out, but the cost of stuff decimated the purchasing power.  This may seem mathematically incongruous, but for those of us who lived in the 1950’s and 60’s, it resonates.  Note how two important purchases — housing and cars — have outstripped average incomes since 1960.

Why things suck 2“Today” is a mix of 2017 & 2018 data, as available

So there’s that.  Sure, houses are nicer today than in 1960, cars are nicer (and safer, too), and we get a lot better health care today than w-a-a-a-ay back then.  However, arguably, the linkage between working and achieving “the good life” seems to be broken today for millions in the middle class.  That’s one of the main reasons why things seem to suck today.  This has enormous implications as we go into a major mid-term election.  However, from an economic perspective, these long term trends are decidedly problematic.  This is the global warming of the national economy.

Written by johnkilpatrick

September 11, 2018 at 9:14 am

Posted in Uncategorized

Need a job?

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I pulled up behind another car at a stop light yesterday and couldn’t help but notice a license plate surround for the local construction laborers union, plus a labor bumper sticker in the back window.  This attracted my attention because the vehicle in question was a late-model Cadillac Escalade.

Admittedly this may have been an outlier, but all across the U.S. there is a huge demand for entry level construction trainees.  Here in Seattle (a high-wage, high cost-of-living area) entry level “no experience, no education” wages are in the high-teens per hour, rising rapidly to $50k per year with a modicum of experience.  Take some winter months to go get trained in plumbing, electrical, or HVAC and the annual income gets into the high 5 to low 6 figures pretty quickly.  (The average plumber in Seattle makes $95,000 per year, according to Salarylist.com.)   Some sources put this number somewhat lower, but you get the point.

Ironically, these jobs are going begging, and the reasons are varied.  Many young people are scared off from a job that evidently requires a lot of outdoor work and physical stamina.  Yet, as one young woman in a carpenter training program noted, “If you work hard and you put in your effort, they’ll take you over somebody else who is muscle…” Baby boomers seem to think that if their children don’t go to college, they’ve failed as parents, and so the percentage of construction workers under age 24 has declined in 48 states since the peak of the housing boom.

Wall Street Journal has a great article this morning called “Young people don’t want construction jobs. That’s a problem for the housing market.”  It is indeed.  It is one reason why home construction per household in America is at its lowest level in 60 years of keeping records, according to the article. The reasons include lack of vocational programs in high schools, although many of these are coming back. The Home Builders Institute, affiliated with the National Association of Homebuilders, has as many as 6,000 young people in their training pipeline at any given time.

I’m not suggesting — nor is the WSJ, that flooding young people into construction jobs will change the housing affordability metric overnight.  The homebuilding industry is still replete with problems such as a trade war with our principle material suppliers, a lack of housing infrastructure, and short-term financing issues.  Nonetheless, young people might want to be reminded that a surprisingly large number of CEOs in the construction field got started with a hammer in their hands.

Written by johnkilpatrick

August 1, 2018 at 8:06 am

And yet more on housing

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Twice burned, you know?  I think we should all be a bit gun-shy about rapidly increasing house prices.  Are we looking for a bubble or a peak?

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, reported a 6.4% annual gain in April, slightly down from an annualized rate of 6.5% in March.  While they produce a few other indices, all of them basically report the same thing.  Oh, by the way, my home city of Seattle leads the pack with an annualized rate north of 13%.

Glancing at the graphic, below, the slope of the current pricing graph looks suspiciously like what we saw during the bubble run-up.  As I’ve noted here previously, house prices increasing at a rate higher than 2 points over inflation is emblematic of a bubble.  That would suggest a nationwide rate somewhere around 4% – 5% right now.  You do the math.

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Written by johnkilpatrick

June 29, 2018 at 1:56 pm

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