Moments of Clarity

Real Estate Fallout Starting

Iowa home sales were just reported as up by 4.1%.  Compare that to 41 other states that were down and we're looking great.  Florida is down 41%, Nevada 37%, and Arizona 23%.

Today's Countrywide Mortgage news showed that the company could be in trouble too.  I think the worst of this market has yet to emerge.  People are starting to "know people who have good income and decent credit that can't get loans".  The next thing is that you'll have acquaintances or friends that enter foreclosure and must walk away since they're upside down. 

These are the "slow bubbling downers" that are making their way to the top of the barrel.  The rental market should really be boosted by these factors. 

Additionally, I think there are builders out there with massive inventory yet totally stagnate.  Resales are probably happening for less than new home listings, etc.  When those guys go public with their problems, the gettin' could be good for investors.

Do you know anyone in the market for an executive/family/high end rental...like the $1500/mo 4+ bedroom type with full service?  Please let me know if you do. 

My how lending times have changed.  Before:  Pulse = massive loan.  Now:  great credit, great income = maybe.   

Kotkin on the Burbs...Data Shows Continued Strength

The first paragraph of Joel Kotkin's piece appearing in Money Magazine's "Best Places To Live" edition paints an incredibly accurate picture of the erudite downtownistas:

An increasingly trendy theory holds that the ticket to attracting and retaining the educated and upwardly mobile is a big dose of urban cool: Think open-air cafés where well-heeled retired boomers and twentysomething professionals gather after the theater to sip Pinot Grigio while looking out at a skyline defined by the latest creation of a world-renowned starchitect.

Excellent description.  In the case of the Des Moines metro, I'd slide in a reference to, "...and eating some kind of exclusive private label pork product." 

With the umpteen "Flats, Brownstones, and Loft" projects underway in downtown Des Moines, one would think that a massive trend is underway to move into the heart of the city where apparently no one actually makes coffee at home or buys wine by the bottle at Costco (Costco is located in the suburb of West Des Moines and is the only Costco in the state of Iowa).  However as Kotkin and the Praxis Strategy Group research points out, the data simply does not support the validity of this trend.

Suburbs and areas outside of the "Hip urban core" as Kotkin describes it, consistently demonstrate higher growth numbers and are delivering on the promise of a homey feeling more so than their "industrial downtown domiciles".  Kotkin cites a Temple University study that indicates, "Nearby suburbanites were considerably more likely than city dwellers to see their neighborhood as "home."

I don't believe that the downtown loft craze is a bad one.  Des Moines struggles with its identity.  It wants to be hip and cool so that its recent college grads from many fine Iowa institutions stay here instead of bailing out for the coasts, Chicago, Minneapolis, etc.  This urbanite form of living may help bridge that gap for the 22-28 post college demographic.  However, when those men and women begin to settle down and have a few babies, they'll begin to sprint for the suburbs where we watch our children ride bikes and electronic John Deere tractors while mom and dad chat with neighbors and sip inexpensive Shiraz.  The data as well as my gut both bear this out.  The Des Moines register often profiles people that have made the downtown leap...and they're always either retired (or close to it) or attractive twenty-somethings.  When I read about a family of 5 doing this, I'll modify this post.

So if I was a betting man, I'd go long on the positive mojo provided by the glut of urban development in Des Moines.  The recent Fast Company article that touted Des Moines as a "City on the Verge" of becoming a tech boomtown, also indicates that the metro may be on the verge of retaining the younger set as employees of hip tech companies.  (My comments on that article will appear in the magazine next month I believe)

But what happens if the tech companies plant their offices in the burbs because of tax breaks and other back office niceties? (Very likely and far more practical) Will the youth choose a 15-20 minute commute (about the longest commute possibly in God's gift to mankind, Des Moines) from their downtown  "above the coffee shop" loft?  Or will they buy a nice 3 bed room home with a mortgage payment that's less than rent...and use their savings for a Costco membership?  Come on in folks...the burbs and the inexpensive wine are just fine! 

Iowa Has Been Googled

I've been reading teasers about this for months, but it was announced today that Google (NASDAQ: GOOG) is going to build a server farm in Council Bluffs, Iowa...just across the Missouri River from Omaha. Now there's something more cool than "The starting city of last year's RAGBRAI" to talk about)  (Forbes Article Here). This is a massive boon to Council Bluffs I'm sure and pretty cool for the state in general.

The bottom line is that GOOG is concerned about power and the consistent delivery thereof.  MidAmerican Energy Co.     (other-otc:       MDPWL.PK  (Thank you Mr. Buffett) just spent $1.2 billion upgrading their systems, etc. 

Bring on the anti-GOOG crowd now to discuss conspiracy, corporate welfare, and invasion of privacy, etc.

Another Geographic Arbitrageur Strips Away the Varnish

Anyone considering the geographic arbitrage play (keeping your big city income, working remotely, cashing out your equity, using it to free up your time and career options, and moving to the heartland), should read this post at The New Charm School.  I remember when Jennifer posted that she and her husband were looking for the right place to move, deciding upon geographic regions, etc. 

Now, she's finally stripped away the layers of varnish and has exposed the real grain and texture of her soul...to herself. She's no longer globe trotting and living out of a suitcase.  She's traded her Donna Karen's for Justin Ropers and is livin' la vida loca somewhere in Texas.

It's nice to see how relocation can facilitate the exposure of the true you.      

If Charles Ingalls Had Venture Funding (or How America's Heartland Is HOT)

Joel Kotkin, internationally recognized author on global economic, political, and social trends, has written yet another fantastic piece called Little Start-up on the Prairie.  Maybe it's that we in the Midwest are just jazzed when someone notices us or that our geometric shape stood out when flying over it, but the bottom line is that our humble agrarian rooted section of the country houses much of the greatest economic growth potential for the future.  Kotkin's tale begins in Aurora, Nebraska, a town of 4500.  Kotkin states quite simply that,

"Aurora and other places in the American Heartland will provide a critical outlet for the restless energies and entrepreneurial passions of its people. In some senses, such a trend represents a reprise of the region’s role in the evolution of the country and the shaping of its national identity."

In fact, since folks are realizing that on-shoring and in-sourcing are not only economically feasible, but highly desirable, the problems shift from lack of affordable housing...to a lack of any available housing at any price and a dearth of workers. 

Kotkin goes on to mention Iowa and specifically Des Moines many times in the piece highlighting that,

"In virtually every measurement, students in key rural states—particularly the Dakotas, Iowa, Nebraska and Kansas—tend to perform better than those in more urbanized ones, as measured by graduation rates, college attendance and enrollment in high-level science and education programs."

The key take aways for me are:

1. Be bullish on the Midwest (and specifically Des Moines) economies. 
2. Iowa has a massive amount of talent and future skilled workers from a robust and respected University system so we must cultivate that talent.
3. We must impart upon these young minds that the best for them does not lie 6 hours away to the north and east.  Rather, it lies here.   There are great reasons to visit other places but even more reasons to build a life here.
4. The opportunity to be a bigger fish in a smaller pond can accelerate your path to success.  I've lived that coming from Riverside, CA where I was but a simple GPS coordinate on a suburb that extended 250 miles in any direction. 
5. The talent pool here is immense.  It seems every day that I meet someone new that teaches me something. 
6. The people here are different.  There's something deeply rooted in much of the Midwestern population, but it's subtle.  It's a pleasant, hard working, almost zen-like kindness that's exuded since years have not been spent strengthening a "coastal exoskeleton."
7. Buy as many houses and high rise condos as you can.  We will be successful in our quest to convince the next generation (is it Z now?) that staying can be profitable and cool, and someone will need to rent to these people as they flow through the more natural progression of home ownership. The life path of a twenty-something is so very skewed in the large metros where someone graduates college and is faced with the prospect of a $600k starter home 1.5 hours from their job.  We can help break the cycle of thinking that this is acceptable by providing a wonderfully fulfilling alternative.
8. The ethos does exist that, "If I can't make it on the coasts, I'm a loser compared to my peers that can".  This type of thinking is outdated.  In fact, if making it means spending 5x on housing and generating debt, then yes, you're a loser.  I'll take the label and remain more economically viable.
9. Renewable energy is perhaps the most clear example of the power of the Midwest economy.  Daily, I read economists and social commentators (I almost used "Socialists") that bemoan the continuing process of discovery and innovation in this area.  "We're starving kids in Mexico" and "we'll never have enough land or corn" are the battle cries.  Thankfully, few have listened and the process of harnessing the true power of the earth goes on.  If we put the brakes on or take one step back in this area, we'll simply hand over the power to those who never stopped believing.  Recently, Iowa State lost a $500 million funding opportunity in renewable energy to UC Berkeley and U of I (Champaign-Urbana).  Maybe we need a journeyman-actor-Governor to lead our charge?  Who would you pick?  I'd pick Brandon Routh since Tom Arnold would have a tough time using complete sentences.

Of course when I executed my geographic arbitrage from CA to IA, I really didn't appreciate what I was doing.   I knew that I loved what I'd seen and I was drunk with joy over housing prices.  It turns out that I'm smack dab in the middle of Ethanol Alley and the heart...of the heartland Renaissance.  Michael Landon would be proud.

middle income buyers bail

It's widely reported that the middle income buyer, the buyer pinched most in the LA, California housing market, is bailing in favor of getting more for less elsewhere.  Joel Kotkin, the master analyst, author, and commentator on this subject wrote a piece that appeared in the LA Times on this today.  His article describes the necessary economic readjustment that will inevitably occur in LA since a massive and very vibrant economic sector, the middle income family, is moving out much faster than they're moving in. 

I believe that we're barely scraping the surface of the "scorched earth" in the LA area.  A massive percentage of the mortgages given in the last few years were negative amortization loans.  Many of these loans were taken out by very smart people.  It takes a while for smart and productive people's mistakes begin to pop up on the radar...but they will.  High limit credit cards and peak valuation home equity lines can go a long way. When the "good people begin to go through bad things" you'll see a more powerful correction in prices and economic conditions. 

The time to buy in LA may be only a few years away.  Once the economic dust has settled and barring a major earthquake or 24 like scenario, things will likely reach equilibrium.  Until then, many boutique cities and smaller Midwestern enclaves like Des Moines will flourish.  Our metro area has 99% of big city amenities without the hassles and pain associated with them.  We're seeing the "condo, office space, and retail" combination thrive in suburban areas.  Downtown is seeing flats and condos rising from the ashes of ancient manufacturing and warehouse facilities that have rotted for years attracting the young professional set, pre-kids and pre-McMansion desires.  Additionally, the nightlife and coffee house culture that seems to go hand in hand with this style of living is attracting and keeping the youthful twenty-somethings.  These folks may actually stay in Des Moines versus heading off to LA, Chicago or NYC for their assimilation into the debt laden high society collective. 

My wife and I have considered purchasing a downtown condo as a rental and as a possible "retirement home" for our post-kid life but have yet to pull the trigger.   The more I type though, the more interested I'm becoming in this option.

Why Iowa? From a CA expat

I thought I'd chime in this topic that was floated a while ago.  I'm not sure who started it...but here's my two blog-cents.  Why Iowa?

1. Agrarian roots seem to give Iowans even long removed from farming a warmth that says, "I've got a pot of coffee on and something in the oven...come in and sit a spell"
2. Neighborhoods still have "marauding bands of kids of various ages" being kids, sometimes doing bad stuff, but mostly just being curious kids.
3. There are few walls and fences.  Neighbors talk, see each other, and interact more.  We did not have this in our former home...and we relish it now.
4. Quality of life.  This is a broad generalization...but the ability to "Pretty much do what you want when you want without having to plan too far ahead" is my definition.  Getting in the car at 5PM and heading into the heart of downtown Des Moines is no problem.  Getting into the car and just getting onto the freeway was a problem where I was from.  I routinely don't remember the last time I got gas, and my wife has halved her petrol usage while doing whatever she pleases.  Everything is just close.
5. Connectivity to a thriving business community.  I have met more people in the greater Des Moines business community in the last 6 months than I met in all of my career in CA.  From top business leaders to venture capitalists...from business blog coaches to branding experts...from renewable fuel experts to ..you get the idea.  If I'm looking to open the door to something, I've got multiple folks lined up with keys and looking to assist me. I hope I can give more back than I've taken.
   
6. Housing.  One can easily procure a 3br, 2ba, 2car garage type home in a very nice neighborhood for $150k.  Additionally, one can find a $80k 2br home and a $500k 5br home.  All of these places could be within the same general area.  At the end of the day the "normal" American progression from starter home...to family home...to big dream home...and everything in between is obtainable. 
7. Weather. I know, coming from CA the cold has gotten to me a little and frozen a few brain cells!  The bottom line is that I enjoy the differences in weather, the rain, the snow (we've only had 1 inch this year so far), and the seasons.  I've written before that weather is such a small part of normal life when you're busy with the family that it really doesn't matter as long as you can do what you want to.  I enjoy sitting around a fire on a cold night as much as I do around a patio table on warm summer evenings.  Also, if you do your own yard work (as I do now), you have a full 3 month reprieve from doing anything!  It's not as cold and snowy here as up north in Wisconsin...and not as temperate as Kansas City.  I think it's just right.

We chose Iowa about a year ago...and it has most certainly chosen to embrace us, welcome us, warm us, and provide us with new friends and opportunities that we never dreamed of.  It's our turn to give back and we're going to make that a priority in 2007 and beyond.

Thank you Iowa...and that's why.

Another Geographic Arbitrageur Story

Jennifer and her "New Charm School" blog continues to fill us in on her transition to fully independent non-coastal dweller!  She's ditched the full-time paycheck and living La Vida Loca in Texas.  Awesome.  I think Jennifer and I are competing for top spot in Technorati for the Geographic Arbitrage tag...and that's about ALL I can say we're competing on...because she promptly kicks my blogging rear in everything else.  Watch out Ms. Warwick...I'm gunning for a sub 75 ranking soon :)

The Heartland

Two things I'd not yet experienced occurred the other day as I was driving from Des Moines to Peoria, IL.

1.  Frozen windshield washer squeegee bucket.
2.  An E-85 ethanol pump

Both are pictured below.  Life is like a cob of corn...you never know what you're gonna get.

People Drought

Today, the Des Moines Register posted an editorial piece entitled:  The Issue:  The People Drought.  The piece highlights the major challenge that Iowa (like most of the non-coastal cities) will face in the coming decades.  According to demographers and other experts, we'll face a massive shortfall of workers here.  It's estimated that by 2012 (only 6 years from now mind you) that we'll have 150k more jobs than workers to fill them. 

It’s estimated that Iowa will have 150,000 more jobs than workers by 2012, and it could get much worse thereafter. Rather than new businesses coming to Iowa, the specter is of businesses leaving Iowa because they won’t be able to hire enough workers.

Living in California all of my life until 2005...I never had to face an issue like this...nor do I think we'll have to face it here.

Here's why.  These dire predictions of worker shortage seem to rarely if ever come true.   The statistics assume that at "retirement age", baby boomers will perform a mass exodus from the work force.  Wrong.  Using the same statistics, I'm sure we'd find that a majority of those boomers have under capitalized their retirements..and thus will be changing careers, filling in at mall jobs part time, and the uber professionals will be called in to perform their acts of gray haired wisdom at companies around the state. 

No one here is throwing illegal immigration into the mix either.  You can continue to put off the inevitable by allowing unfettered immigration to "fill the jobs"...but what job deficits are we really talking about here?  Are we facing a lack of 150k skilled workers, burger flippers, or doctors?  No one ever really makes that clear when they speak expertly.

The core of this insane political football remains:

1. If education was the priority of this state above all else...we'd have the best starting point of ANY state from which to build our foundation.  End of discussion.
2. If Iowa and the Midwest puts its full force behind becoming the scientific and ag/biofuel technology leader...we'd have no trouble attracting smart people and entrepreneurs and venture capital after the initial ethanol hangover wears off.
3. Stopping illegal immigration will force the economy to realign itself with the proper market forces at play...this will throw all formulae off by an order of magnitude.