Local Economic Glass Half Full or Half Empty?? (Kingsport, Franklin: sales, real estate)
Kingsport - Johnson City - BristolThe Tri-Cities area
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Our local economic machine is definitely hurting, and I know a lot of people out of jobs, factories going away and lots of empty storefronts, even in the highest-traffic shopping malls like the Peoples Crossing area.
But I agree with rccrain. I think we are on stronger footing than a LOT of the nation and on equal footing with the rest. Our housing market hasn't really declined more than 1-2% (if I remember correctly a story I read recently) which is the primary investment of people living here with homes. And we are still having construction, though admittedly most, if not all, of it was in the planning and funding stages before the economy went into full-blown recession.
Still, though, we will rebound as the cycle swings up. I just hope that projects that were on the table, like ETSU parking garages and a new baseball stadium at Tennessee St/South State of Franklin, the "student village" beside it, the Hilton/office/retail tower beside the Millennium Center, etc. *might* be reinstated...
I definitely see it as half full, but I am an optimist by nature. (like that is a surprise to anyone on here LOL!) I also realize that numbers are numbers and do not always show the whole picture. Then again, if you compare our local numbers to the rest of the country, yes, we are doing MUCH better than a lot of areas. Then again, so are a lot of other areas across the country. Look at it this way. Where are the hardest hit areas? S.E. FL, S. CA, Phoenix AZ, Detroit MI....now look at how big and how many others of states, areas, cities there are that are not as hard hit. We are not the only ones doing ok. The main stream media has a lot to blame for that perception. But if you go just by the numbers, which investors do, and volatility of the stock market, we do look GREAT, so we have a lot of investors pulling their money out of stocks and putting into real property...where are they putting it? Where the numbers are good, here. We are lucking to now starting to see money coming into our market from elsewhere because our numbers are good. I honestly believe that we as an area are set for a large boost, which could be a good thing, and a bad thing. Increase is good, yes, but controlled increase at a steady pace should be our current focus to avoid a hard hit in years to come.
One question I'm curious about also sort of relates to the media.. We keep hearing no one can borrow money for cars or homes or their businesses. Well, this morning on C-Span's Washington Journal a real estate broker from a town in Arkansas (which she said was rather poor) called in and said her customers were having relatively few problems obtaining mortgages. And I've heard that said several times before... We've had no problem continuing to obtain money to keep our business running so, all in all, it makes you wonder why the media keeps repeating it's become such a dire problem.
Anyone have any thoughts or experience in this regard?
Yes, I believe it is the mega industries: car manufacturing plants, Wal-Mart, etc, that are having a hard time doing business as usual due to lines of credit shrinking or disappearing. See they would normally have a huge line of credit, such as a million or so. They would use that to make payroll, then pay it off when their A.R. came in. Next few weeks, use it to make payroll again then pay it off again. This has been a typical way for a lot of business to work, using the money on hand to buy supply's to make their product, borrowing the money from a bank to pay payroll, paying it off when the product was sold. When that line was cut off months ago due to the foreclosure rate taking a bit of a jump and the banks freaking out, it caused a huge fear like the 1920's when the banks stopped paying out on withdrawals because they didn't have it, they had loaned it out to make more money on their depositors money. History has always seemed to repeat itself. I think this is what caused the huge fear this time around, whether realistic or not. When the banks started to pull back on some loans to the big boys, everyone freaked out thinking it was trickle down to everyone because the banks have no more money to lend. Not true.
The banks were just running on way to small of a margin. When 1% of the banks mortgage loan holders started to default on payments (mainly due to mortgage interest rate resets to a MUCH higher rate.) They found they were operating on too small of a margin and could not operate without that 1% or so of income coming in. They now want to run on a larger margin/safety net, which is smart. So they were not able to loan out that million or so to a huge industry, which needed that money to make payroll. Now, have 75% of the nations banks and lenders realizing this mistake of running on a small margin all at the same time and decreasing those huge lines of credit...yep, you get what we have now, a mess. Remember, a huge majority of stocks on Wall Street were based on large lots of mortgages. This is why everyone says that fixing the housing market is first priority.
Here is the difference from then to now as far as lending out money for any kind of loan. Before: If you had no or very poor credit, no long term verification of income in a lot of instances, you still qualified for a 100% mortgage loan. Yep, banks were giving out money to people making 50k a year to buy a 300k house. How were they doing it? By giving them a lower rate (some times 1%) for the first two years of the loan, then that loan was to reset to maybe 10% or 13%, and oh yea, they loaned those people 100% of the value of the house when purchased. So someone could get into a house and mortgage for about $500 or so at the time of closing, financing everything else.As several of the banks started offering these loans, the other banks needed to offer the same to be competitive and stay in the market, so the majority loaned mortgages this way. Then a few years later the first group of those homeowners faced the time to pay the higher rates couldn't do it and foreclosed. Now their neighbor who also had a 300k house went to refinance out of that high rate couldn't. Why? because of the neighbor foreclosing and the bank dumping it quick, sold it for 240k and took the loss. So now neighbor two's house is only worth 240k on an appraisal and can not refinance out of their 300k mortgage because they don't have 60k on hand to pay off the original note. This happened in mass in those "hot spot" cities, but it didn't happen here in N.E. TN, but we have branches of banks here like Bank of America, Regions, Sun Trust and others that are national banks that as a whole lost that operating margin due to these foreclosure in say FL, CA, AZ.
What those banks did is no longer loaned out money for mortgages to people with low credit, no down payment and no real long term income across the board. Look what that smart choice did to the "numbers". Hundreds of thousands of people are no longer eligible to buy a home or refinance the one they have. This is not a bad thing, in my opinion they shouldn't have been able to finance all that money with no real way to pay it back in the first place.
Now, these new criteria of better credit and income also applied to car loans, credit cards, student loans, personal lines of credit, etc. However, if you personally have good credit, steady income, and some reserve assets to weather you through bad times, you can still get a mortgage loan, car loan, student loan etc. You know, the same way you could in the 1950's through the 1980's.
Our smaller local banks here in this region did not feel this crunch or loose their operating margin. Hence, they are still loaning out money to those who can prove they can pay it back. 95% of depository banks have not stopped lending, they have just tightened up their criteria for lending it out to insure they will get it back and make money on it.
I know of a car dealer in southern TX, he says that they have been setting record sales for the past 6 months. He says the banks they normally work with are still lending out the money. There are lots of similar situations across the country. People here are refinancing their mortgages into these supper low rates for a 30 year mortgage like crazy. Think of how well poised we will be for the next 20 or so years here with the majority of our homeowners paying only 5% or so on their mortgage. They will have money to spend on luxury items and such. This is why I am so thankful I live here in this region, one of the regions that are doing really well economically and are poised to do so now for years to come.
Excellent assessment of the situation, MB, both from a local perspective and a more national one! Thanks...
Sooo, all the average folks who did make a 20% down payment on their homes and car loans and have 'maintained', are probably not in too bad shape (if they have a decent job or business). And our local banks who know their cutomers are probably okay, too. Unfortunately, the ripple effects (trickle down - or maybe gush down) in the larger markets are the ones we all need to have some concern about.
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