Economists Forecast Four Years Before Sacramento Recovers (Folsom, Brea: real estate, lease)

[NewToCA]

Interesting story in today's paper, I agree with it too BTW:

"I don't expect 2010 to be anything more than a year of stabilization," said Garrick Brown, Sacramento research director for commercial real estate brokerage Colliers International. Brown said rents are still falling and more stores, offices and industrial spaces are sitting empty.

"I think we're about to enter a period of two to three years where there's virtually no new construction," he said. "It means there's going to be a lot of developers out there without a lot to do."


Economists forecast four years before Sacramento recovers - Sacramento News - Local and Breaking Sacramento News | Sacramento Bee (http://www.sacbee.com/topstories/story/2466067.html?storylink=omni_popular - broken link)

[DMenscha]

Heheheh

Reminds me of the joke about a balloonist who takes off and gets lost when fog rolls in underneath him. It finally clears and he finds himself above a golf course. He calls down to a guy putting. "Can you tell me where I am?" Guy answers "You're about 250 feet above the 14th green" Balloonist says "are you an economist?" Guy says "Why yes I am, how did you know?"

"Because your information is totally accurate and totally useless"

You can fill in the occupation of the golfer with a lot of other professions.

[KC6ZLV]

Originally Posted by DMenscha

Heheheh

Reminds me of the joke about a balloonist who takes off and gets lost when fog rolls in underneath him. It finally clears and he finds himself above a golf course. He calls down to a guy putting. "Can you tell me where I am?" Guy answers "You're about 250 feet above the 14th green" Balloonist says "are you an economist?" Guy says "Why yes I am, how did you know?"

"Because your information is totally accurate and totally useless"

You can fill in the occupation of the golfer with a lot of other professions.

Like real estate agents and brokers? You know, the ones who keep insisting, "now is the time to buy," and "the housing market will make a sharp rebound in just a few months?" And insisting every economic report that isn't favorable to the real estate business is "useless information."

Sacramento's economy is in very bad shape right now. It has been running on cheap credit and government over-spending since about 2002. People aren't buying houses in Natomas or Rockin and running to Home Depot to remodel it, then over to Ikea to furnish it. We have an over-supply of houses sitting vacant in every city and unincorporated suburb of the metro area. Most of the IT jobs have left for India. It wasn't long ago that the IT sector exceeded the government sector in our area. That is not coming back, and I don't see people here being mindful enough to vote in people who will actively make an attempt to bring businesses into the area. Even the majority of call center jobs have left. AAA finish up getting rid of their call center jobs last year. GAP contracted their call center operations to IBM. IBM's business in California is moving jobs out of California, and the country. AT&T is currently in the process of laying off people at all of their Sacramento facilities. Sam's Club is closing one of their stores, and chances are another major retailer or two is going to back out of Sacramento by the end of the year. Several of the large trucking firms have had sizable layoffs this month too. Transportation is a large portion of the local economy.

Companies aren't going to invest in an area where the economic activity is behind other metro areas.

The other potential problem is the people who earn median wages and higher tend to follow the money and move to areas where there are better job opportunities. If it stabilizes this low for the next several years many of them are going to leave, take their money with them and pay taxes elsewhere. This will extend the recovery period.

Also, the local government needs to think beyond construction and those suburban strip malls as an economic base. 4000 quarter-time jobs from an arena isn't going to do much either.

[KC6ZLV]

Here is a link to the report:

http://sacbusinessreview.com/Documen...010_small3.pdf

[NewToCA]

Thanks for the report link, interesting observation from the report:

What was originally a sub-prime problem fueled by irresponsible loans now includes the best of borrowers who have lost jobs or faced other financial hardships as a result of the recession.

Also, on Pg 17, there is an interesting chart showing the monthly percentage of overall loans that are at least 90 days delinquent. It includes the following comment:

As shown in Figure 3, the percentage of mortgages over 90 days delinquent in the region grew at an alarming rate during 2009, rising from 7.64% to nearly 11% by October. The momentum of casualties created by the economic downturn is growing.

[Majin]

Like every other economic report I take this with a grain of salt and so should any critical thinking person.

The state of the local economy is very overblown to get people riled up and to sell news papers. It's no where near as bad as people make it out to be on here.

Just because very little construction is going on around here doesn't mean our economy is dead. It just means that Sacramento from 2006 on is going through the growing pains of diversifying, although in the grand scheme of things we were already diverse. This isn't a one-industry town like Detriot. Infact, you guys make it seem like Sacramento is in the same or worst shape as Detriot and that city is litterally rotting away with 50% unemployment.

Construction industry is bad here (and EVERYWHERE else in the country), but the health industry, green tech industry, energy, education, is still going strong and adding jobs. People are still moving here for jobs all the time. Persona incomes are expected to increase this year, new home construction are expected to increase, median housing prices are expected to increase.

All in all, Sacramento is by far not the worst place to be right now.

[KC6ZLV]

Majin, the problem is the local economy hasn't been diversifying. Our strength in the post dot-com recession was the diversity. A significant amount of technology jobs and companies left the region. The local response of the elected officials was to encourage real estate development, as if it would be endless. There have been several high-profile opportunities that have come up over the last five or so years, and Sacramento's response was, "gee, we would really like it if you came here." All the effort was left up to individual advocacy organizations in the area. The local governments just weren't motivated to improve the situation here. They were more concerned with the Sacramento Kings.

Companies are just leaving because other cities are offering better deals. I don't agree giving individual companies perks, but when it comes to competition, it is a necessity.

And yes, the economy is bad. Not only are people getting laid off due to closures. Many are getting laid off so they can replace them and pay less. Much less. I was laid off so I could be replaced with someone earning significantly less than half of what I was making, and no benefits. I was making a chunk of change more than the median family income here, with benefits, vacation, etc. I'm now unemployed, not spending money on much more than food and rent, and the guy that replaced me is only making a little more than I am on a year's worth of unemployment, so he isn't spending money on much more than food and rent either. I know three other people who were laid off for the same reason, and it wouldn't have happened if the economy wasn't in the state it is in.

And yes, it is bad. Very bad. It just doesn't seem that way to most people who are still working, running to the grocery store, and home again. A little observation reveals a lot. Not only are many retail spaces vacant, the business parks have an incredible amount of vacant space too.

[Majin]

I think you are letting you own situation cloud your judgement on how bad things really are.

It's VERY bad for SOME people. Just like it's VERY bad for SOME people in the best of times who happens to get laid off. Companies aren't leaving the Sacramento region in droves as you say, you are over exagerating. Yes some comapanies may have left, but thats the business cycle, in every other city coporation come and go depending on what kind of deals you can get in other cities.

I have been working out in Folsom for almost 3 years now. I have not seen the mass exodus of tech companies you speak of. There are still huge office buildings being built out there right now and I have seen several new business parks open up over the years.

Depsite what you think I am very much "out there" and don't live in a little bubble of going to the grocery store and back. I am out all over the region all the times and I don't see a sea of boarded up business parks and strip malls.

Can you even point me to an area with a miles upon miles of boarded up business parks and strip malls (besides del paso heights)?

[Phil Minor]

I hope Majin's right, but I have my doubts.

If you look at real housing prices, housing in Sacramento is still more expensive today than it was at the peak of the last housing boom right before the end of the cold war.

Housing Bubble Graph: Sacramento, California inflation-adjusted housing prices (http://mysite.verizon.net/vodkajim/housingbubble/sacramento.html - broken link)

In the past when the economy was weak, housing prices fell and the comparatively cheap housing prices in Sacramento encouraged employers from outside of the area to relocate to the area. While housing prices have fallen a lot in the past several years, in real terms they are still by no means cheap.

As recently as 1997, real housing prices were more than 45k cheaper than they are today. Unemployment is worse today than in 1990's. In the 1990's the local unemployment rate peaked at 9.3%. So one can't argue that housing prices fell more then because the local economy was worse then. The economy is worse today.

If you look at the year over year data, (to avoid seasonal changes) the only industries that are currently adding employment in this region are schools and farms. The community colleges are swamped with students going back to school. There just isn't much data to support the argument that the economy is going through the growing pains of diversifying. If we were we would see it in the employment stats.

http://www.calmis.ca.gov/file/lfmonth/sacr$pds.pdf

http://www.calmis.ca.gov/file/indhist/sacr$hws-1990.xls

[Phil Minor]

Originally Posted by Majin

I think you are letting you own situation cloud your judgement on how bad things really are.

It's VERY bad for SOME people. Just like it's VERY bad for SOME people in the best of times who happens to get laid off. Companies aren't leaving the Sacramento region in droves as you say, you are over exagerating. Yes some comapanies may have left, but thats the business cycle, in every other city coporation come and go depending on what kind of deals you can get in other cities.

I have been working out in Folsom for almost 3 years now. I have not seen the mass exodus of tech companies you speak of. There are still huge office buildings being built out there right now and I have seen several new business parks open up over the years.

Depsite what you think I am very much "out there" and don't live in a little bubble of going to the grocery store and back. I am out all over the region all the times and I don't see a sea of boarded up business parks and strip malls.

Can you even point me to an area with a miles upon miles of boarded up business parks and strip malls (besides del paso heights)?

According to Colliers the vacancy rate for office space in the Sacramento region is about 20 for office space, and about 12% for industrial real estate. Moreover net absorbtion of space is negative. (More stuff is coming off lease than is being leased out)

The region is also overbuilt with retail space having more retail space per sqft then the rest of the country.

http://www.sacbee.com/static/weblogs...0Calfornia.pdf