From a small northwestern observatory…

Finance and economics generally focused on real estate

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Real estate risk audit

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Sixty percent or more of American households own some kind of real estate, even limited to the home they live in.  Perhaps even more Americans may indirectly own real estate thru a pension plan or 401-K.  Wealthy families nearly always have significant real estate holdings, both for the portfolio diversification aspects and as a hedge against economic bad-times.

The recession of 2007-09 left a lot of investors gun-shy.  Historically in the U.S., real estate has been a solid investment in both good-times and bad, and since WW-2, single family homes have increased in value about 2% above inflation, year-in and year-out.  However, before, during, and after the recent recession, real estate prices roiled in much of the country, although admittedly prices seem to be back on an even keel.  Nonetheless, investors continue to be nervous, and rightfully so.

House Price Index versus Recessions

Of course, for investors, developers, and managers with more complex portfolios, these questions require a bit more of a portfolio audit.  For the securities investment portfolio, significant resources are available to manage and evaluate investment choices in the face of changing circumstances.  For real estate investors, tools are somewhat more granular and heuristic.  Nonetheless, the stakes are high, and a solid real estate portfolio audit is a must-do on a periodic basis.

What should an investor expect out of such an audit?  For a securities portfolio, the answer is simple — some stocks get sold, others bought, and some resources get shifted to other asset classes.  For real estate, the key may be simply be one of management or financial emphasis.  If a recession is coming, and vacancy rates rise, then operational and financial leverages change.  These may necessitate financing shifts or evaluation of current and prospective leases.  Development plans may need to be put on hold, or conversely perhaps accelerated.   Some properties may need to be re-aligned or even positioned for redevelopment after the trough of the recession.  Shrewd investors keep a lot of dry powder going into a recession, as buying opportunities will abound.

If you have questions, drop me a line.  I look forward to the opportunity to chat with you about these things.



Written by johnkilpatrick

October 23, 2019 at 9:17 am

Posted in Uncategorized

Rock Hall 2020 Nominees

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So, the Rock Hall of Fame has announced the nominees for the Class of 2020.  Other than the continued oversight of Steppenwolf, I think it’s a great list.  (You might refer to some of my meandering about the Rock Hall on the sidebar, to the right of the screen.)

Pat Benatar, Dave Matthews Band, Depeche Mode, the Doobies, Whitney Houston, Judas Priest, Kraftwerk, Motorhead, Nine-Inch-Nails, The Notorious B.I.G., Rufus featuring Chaka Khan, Todd Rundgren, Soundgarden, T.Rex, and Thin Lizzie make up this year’s nominees.  Regular readers of this blog will probably guess my preferences.  The oversight of Whitney Houston and the Doobie Brothers over the years is nearly unforgivable.  Ms. Houston is the ONLY artist to chart seven consecutive No. 1 Billboard Hot 100 hits, and “I Will Always Love You” is the best-selling single by a female artist in music history. The soundtrack to The Bodyguard is the 4th best-selling album of all time (behind Michael Jackson, AC/DC, and Pink Floyd, all of whom are in the Hall). Add to it — and this is amazing — her soundtrack to The Preacher’s Wife is also the best-selling GOSPEL album of all time.

The Doobies are my personal favorite act of all times. Their induction ought to be a given — they are on nearly everyone’s “WTF” omission list. One of the biggest problems the Hall will have is picking exactly WHICH members of the Doobies get to receive the award — there have been nearly 100 Doobies over the years. This was a problem with Chicago — the original 7 from the first few albums got inducted, but none of the band-members who joined after Terry Kath died and Peter Cetera left. (By the way — wasn’t Cetera a jerk for not showing up????). Anyway, it would be hard to argue that founders Tom Johnson, Patrick Simmons, Dave Shogren, and John Hartman don’t belong on the stage, plus Michael Hossack, Skunk Baxter, Tiran Porter, Keith Knudsen, John McFee, and of course Michael McDonald. That group, plus a few others, would pretty much cover everyone up thru their 1982 disbanding, and all of that crowd should be on the stage sometime soon.

Of the rest, of course Judas Priest, Notorious B.I.G., and Todd Rundgren will be Rock Hall inside favorites.  However, my votes (and so far, the largest number of fan votes) would go to Pat Benatar.

Fans can vote for up to 5 nominees each day.  The top 5 vote getters will be counted along with the normal judging, in a secretive fashion known only to the top members of the Illuminati and, apparently, the Pope.  Simply visit to make your voice  counted, however, they manage to count these things!

Written by johnkilpatrick

October 19, 2019 at 10:44 am

Posted in Uncategorized

A bit about the election

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This is NOT about politics, per se.  Don’t get me wrong, I’m fairly politically active.  However, I try to focus this blog on the economy, real estate, and such and so-forth.  That said, the upcoming 2020 election is dominating the news (and will for the next 14 months, at least) and the mathematical model of getting to a “win” for the dems or the repubs is fascinating to say the least.  First, let’s reflect on the electoral map from 2016.  Note that this is ALL that matters — the dems won the popular vote hands-down in 2016, but lost because they seemingly forgot how the system actually works.


Now BECAUSE of the way the system works, about 70% of all electioneering dollars in 2016 were spent in 6 states.  Indeed, about 90% was spent in 12 states.  This is a function of two things.  First, Alaska has 3 electoral votes.  Plus, Alaska is decidedly and comfortably republican.  The dems ignored it, and the republicans just needed to remind folks that the election was on a Tuesday.  Texas has something of the opposite problem — huge, but again comfortably republican.  (There is some argument that this could potentially change in 2020, but no one is betting big bucks that way just yet.)

As an aside, in 1980, presidential elections were severely limited in spending.  It’s hard to remember, but those were the post-Watergate years, and the Congress was actually jealous of its power back then.  The republicans figured to spend all of their money in the mid-west and the west. California was republican back then, and the south was considered to be solidly in Carter’s camp.  Some republican operatives had a neat idea — what if we spend a LITTLE money in the south, and throw Carter off his game down there?  That was the real tipping point for turning the south from democrat to republican.  Lots of folks don’t remember that states like Georgia, South Carolina, and Virginia had prominent democrat power structures even into the 1980’s.  But, I digress…

This election — 2020 — will be fought in six states.  Period.  All of the money and all of the effort will go to (starting from the upper left and working our way down) Minnesota, Wisconsin, Michigan, Ohio, Pennsylvania, and Florida.  Collectively, these states have 103 electoral votes — over a third needed to win, and about three times the winning margin from 2016.  Whichever candidate carries a majority of the electoral votes in these six states will win.  Period.  Not much else matters.  (Yes, Virginia and North Carolina, I’m talking about you.)

Now, to get a sense of what’s happening, and why rallies in New Mexico and dinners in California don’t mean much, let’s look at the congressional map from 2018.  Polls lie, but electoral maps don’t…


Now, this is one of the most interesting maps I’ve seen in a while.  Focus on the ledgend for a minute.  This is broken down by the 435 congressional districts, all of which were in play in 2018.  The ones in grey can be ignored — either republican or democrat, the vote there didn’t change much (plus or minus 10%) from 2018.  For example, Alaska was republican and Hawaii democrat in 2016, and that didn’t change in 2019.  Dark blue states were democrat to start with, and became more-so.  Dark red states were republican to start with, and became more-so.  Dark red basically happened in three places — the rural southern Georgia/Alabama districts, rural eastern North Carolina, and rural California.  None of these four states is in play in 2018, so basically who cares?  Dark blue, on the other hand, happened in some key areas — Miami/Dade County, where the republicans usually hope to pick up conservative Cuban voters.  It happened in central and southern Wisconsin, central Ohio, central Florida, eastern Michigan, and the small but highly populated Minneapolis/St. Paul region of Minnesota.

More interestingly are the purple districts — these flipped from republican to democrat.  this happened a LOT across the country, but most significantly in south Florida (retiree-populated Monroe county, in particular, in eastern Pennsylvania, in two districts in the suburbs of Minneapolis, and in two districts in eastern Michigan.  Now, the republicans were not without their gains — two rural districts in Minnesota (which went blue in 2016) flipped to red.  Nonetheless, the bulk of the model right now heavily favors a blue wave in these six states, if the trends continue.  In 2016, the democrats ran a “national” campaign, and the republicans focused attention on key issues that would flip swing states.  Indeed, the democrats won the “national” campaign, with a plurality of the popular vote, but lost the war.

Clearly, there are some second-tier states that are teetering on the edge of becoming swing states.  Southern Arizona, with its significant Hispanic population, and the growing up-scale suburbs in North Carolina make these two states very interesting.  Iowa made some surprising shifts in 2018, but with only 6 electoral votes, they won’t get nearly the attention they deserve.

So, predictions?  I’m loathe to put money on this, but it will be an interesting time to be a voter in Broward county, Florida.

Written by johnkilpatrick

September 20, 2019 at 8:16 am

Posted in Uncategorized

Huh… busy week and it’s only Monday

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China buys two things from the United States:  agricultural products and Treasury bonds.  Thanks to our misguided attempts at a trade war, they’ve announced today that they’re going to quit buying one of those two items.  Indeed, for the past two decades, China has been working to expand their sources of basic resources, including foodstuffs. Other countries are happy to oblige.  Since 1970, Brazil has cut down about 20% of their rainforest, mainly for agriculture.  Most of the deforested Amazon is used for cattle grazing, and about 80% of that beef is exported (guess who buys it?).  Brazil is now also the world’s 2nd biggest producer of soy beans.  (Guess who buys THAT?).  Thanks to our U.S. trade policies, Brazil is poised to leap into first place.  By the way, the impact on the global biosphere is devastating, but that’s almost an afterthought.

Is this likely to cause a recession?  Coupled with the yield curve inverting, a slow-down in housing sales, and w-a-a-a-a-y too much Federal deficit spending, and all the signs are certainly there.  If there is one redeeming thing, it’s that so many of us recognize that a recession is likely at this point.

Written by johnkilpatrick

August 5, 2019 at 1:54 pm

Posted in Uncategorized

Lowe’s is laying off thousands

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Well, by itself, this is a startling headline (click here for the full story).  The CNN story blames it on needing to catch up with Home Depot and also right-sizing their inventory (which is, admittedly, huge).  Indeed, for several years, home remodeling has been the bright spot in the retail sector.

However, I’d also remind readers of my note about the remodeling sector from not long ago (click here for that story).  The homebuilding and home sales sectors have been reporting some softness, mainly cost driven, and that’s inexorably tied to home remodeling.  Intriguingly, the folks being laid off are generally in the assembly biz.

As a personal anecdote, I purchased a house in Key West not long ago, and immediately bought a new grill from Home Depot.  Not withstanding my normal “do-it-yourself” attitude about things, this particular grill was a multi-person job.  Home Depot was on the spot, and sent over a team to do the job (kuddo’s to the Home Depot in Key West, Florida!).  Had I not bought a house there, I wouldn’t have bought the grill, and the assemblers wouldn’t have had a job.  You do the math, folks….

Written by johnkilpatrick

August 1, 2019 at 1:01 pm

Posted in Uncategorized

Fed signals?

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The FED is expected to reduce its benchmark rate by 1/4 point today.  Market observers note that this is the first cut since the onset of the 2008 recession, and only the 5th time in 25 years that the FED has reversed from increasing to decreasing rates.

effective fed funds rate

The general role of the FED is to calm the waters, so to speak, and anticipate inflation or recessions.  Indeed, the powerful cut in 2008 was in response to a market on the precipice of an epochal recession.  Note that the most previous cut was in 2001, and before that in 1998. The 2001 cut was in response to an inverted yield curve and an impending recession, while the 1998 cut was in response to a close-call on the yield curve.  There were a series of cuts beginning in 1989 that foreshadowed the 1991/92 recession.

In a perfect world, FED rate cuts would forestall a recession.  In practice, however, all they can really do is soften the blow.


Written by johnkilpatrick

July 31, 2019 at 10:02 am

Posted in Uncategorized

Harvard Study Projects Remodeling Downtrend

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The good folks at the Joint Center for Housing Studies at Harvard (a well-respected old college near Boston) maintain, among other things, the Leading Indicator of Remodeling Activity.  Home remodeling is a pretty significant component of our nation’s economy, with about a third of a trillion dollars spent annually fixing up homes.  In recent years, remodeling has grown by 6% to 7% per year, fueling job growth and the bottom lines of many of our leading manufacturers and retailers.

However, remodeling is (and this may come as a surprise to the uninitiated) heavily tied to home purchases.  Lest we forget, most homes bought in America, in fact about 90%, are “used” homes.  Whether bought as an investment (rental property) or for owner-occupancy, the first thing most “used” home buyers do is some remodeling.  This may be as little as repainting some rooms all the way to a major kitchen or bath re-do, or even adding on rooms, re-habbing the heating and air system, or replacing a roof.  As home sales have soared in America in recent years, so have remodeling budgets.

However, tightening interest rates and increasing prices have led many forecasters to project declining home sales.  Indeed, my own research suggests that homeownership rates, having bottomed out at about 63% after the recession, are now approaching a more market-normal rate of about 65%.  Thus, any residual pent-up demand may have already been spent.

So, the folks at Harvard suggest that by the first quarter, 2020, the annualize average rate of growth in remodeling will decline precipitously, to about 2.6%.  Further, on an annulized basis, actual dollars spent on remodeling are projected to plateau in the fourth quarter of this year, with a seasonally adjusted decline in the 1st quarter, 2020.


Graphic courtesty Harvard JCHS

Of course, major components of the remodeling sector actually thrive during downturns.  Homeowners who otherwise might “move up” to a bigger house may spend those move-up dollars remodeling.  Further, houses need to be maintained, and stuff just wears out. Thus, any decline in remodeling spending may not be as severe as home sales downturns.  However, it’s worth noting.



Written by johnkilpatrick

June 13, 2019 at 6:41 am

Posted in Uncategorized

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