Austin Ranked Best for...Everything and Everyone

Austin Business Journal recently compiled a list of all of the polls Austin has made over the past year. Find the list along with links to all of the polls here:
http://www.bizjournals.com/austin/news/2012/07/20/austin-ranked-best-place.html?page=3

Courtesy of Colin Pope at ABJ: "Not a week goes by without Austin showing up high on a best-cities list.
When our city can be named a best place for barbeque and burgers one week and then be deemed a haven for vegetarians the next, we must be doing something right. Here's a list of the lists Austin has conquered so far this year.

Forbes ranked Austin No. 1 on its list of the best big cities for jobs.

The Fiscal Times just ranked Austin No. 2 on its list of The 10 Top Cities People Are Moving to in 2012.
A study from U-Haul backs that up.

And even for those who don't — or can't — move here, I'd like to point out that Austin is the second-best investment market in the United States, according to Realtor.com.

Census number crunchers peg Austin as the third-fastest-growing city in America. We're gaining about 150 people a day. Round Rock was No. 2.

Austin is one of the best U.S. cities to find work, according to Adecco Staffing U.S.

Austin is the ninth-best city in the country for business and careers, Forbes found.

Forbes also ranked Austin No. 8 on a list of cities where a paycheck stretches the furthest.

Stretching that money here is good, because Austin is among the 25 best cities for shopping, according to Lucky magazine.

Austinites like to veg out, according to GrubHub Inc., which ranked the 10 most vegetarian-friendly cities in the United States. The Capital City took the No. 6 spot on the list, behind Seattle, San Jose, Calif., San Diego, Houston and Dallas.

But don't fret, meat-eaters. We also have some of the country's best barbeque and burgers. Austin ranks No. 13 on Travel + Leisure magazine's 2012 America’s Best Burger Cities list and U.S. News pegged our barbeque at No. 5 in the country. Travel + Leisure also dubbed two local outdoor bars to be among the best in America.

Given all that, it's no wonder why Austin was named a top foodie city by Hotels.com and Richard Sandoval, a renowned Mexican cuisine chef.

Austin, with about 6 percent unemployment, was ranked by Rent.com to be the 10th-best city for college grads due to its low cost of living, interesting neighborhoods and burgeoning tech industry.

The No. 2 hotspot in the United States for technology startups is Austin, according to a list compiled by Payscale.com.

Austin retained the South’s small-business crown for the third straight year back in April.

Austin has been named a great place to retire by CBS Moneywatch.

With over half of the city’s men and women single, Austin ranked among the top five U.S. cities to find a date for 2012.

Austin was named the No. 6 most tattoo-friendly city in America by TotalBeauty.com. It based the rankings on the amount of tattoo and permanent makeup shops listed in several public directories such as Yellow Pages and Google Inc.

Austin has been ranked the ninth-fittest large city in the U.S., based on data compiled by MapMyFitness Inc.

Austin is in a six-way tie with Dallas, Fort Worth, Nashville, Tucson and Washington, D.C. for the No. 17 spot on a list that ranks the greenest cities in the United States.
But the EPA ranks Austin No. 8 for green power.

Austin has moved up one spot on a list of the largest cities in the United States, replacing San Francisco at No. 13. The Capital City had 820,611 residents on July 1, 2011, according to U.S. Census Bureau data. That's up from 790,390 in 2010.

At the start of the year, Austin was dubbed by TheStreet.com to be among 10 cities poised for greatness in 2012. So far, looks like they got it right.

Austin is No. 38 on Sperling’s BestPlaces 2012 list of the most stressful U.S. cities. That’s pretty low for such a blooming city, so keep up the laid-back attitude, Austin.

And allow me to point out Austin's absence on a list: Orkin’s top 50 cities for bed bugs. Phew.

Of all the universities in the world, Austin's flagship school, The University of Texas at Austin, was ranked No. 30 by the Center for World University Rankings in Saudia
Arabia — though I'll bet if those folks came to a Longhorn football game we’d get a bump in their poll.

And because we're the capital of this state, I'll lay claim to these kudos: Texas is No. 1 for job gains and it's the best state for business. A third study said CEOs think so, too.

But you can't win them all. In the interest of balanced journalism, here are the lists that Austin didn't fare so well on.

The Live Music Capital of the World missed the top 10 on a list that ranks the top musical cities in the United States.

Austin motorists wasted an average of 30 hours stuck in traffic last year, ranking high among other U.S. cities with the worst commutes in the nation.

Apparently to some, Austin has a second-class social scene.

The Brookings Institute said Austin ranks No. 78 out of 100 U.S. cities when it comes to connecting employers with potential workers by mass transit.

For the sixth year in a row, Austin is ranked among the 10 U.S. cities with the highest percentage of residents who waited until the last two weeks to file their taxes.

Although, this is perhaps the only procrastination I'd condone.

And finally, at the top of my list of head-scratchers, Austin was ranked the ninth unhappiest city for jobs, according to a list put out by Forbes.com."

Austin Moves Up One Spot on List of Largest Cities in the U.S.

Austin recently beat out San Francisco for the number 13 spot on the list of the largest cities in the US. The 2011 census cites a growth rate of close to 4% from the previous year with the population growing from 790,390 in 2010 to 820,611 in mid 2011.

http://www.bizjournals.com/austin/blog/morning_call/2012/07/austin-moves-up-one-spot-on-largest.html#comments

Fairmont Hotel Breaking Ground Downtown Soon

The Austin Sky Line may be seeing a new addition soon. Fairmont Hotels & Resorts plans to break ground on a new high rise early next spring. The 50 story building will bring over 1,000 new full time jobs to downtown Austin.

"Austin is currently seeing tremendous interest and growth in the convention market and with its reputation as a dynamic, vibrant capital city will be a great addition to our portfolio" says Jennifer Fox, president of Fairmont Hotels & Resorts.

The building will feature tremendous views of the adjacent Palm Park and the planned development of the Walter Creek Area.

Central Texas Population Expected to Double in the Next 30 Years

Population growth in Texas from 2010 - 2040, and especially Central Texas, is projected to be very rapid, with many counties doubling in population in the next 30 years.

Austin's MSA jumped to 35th largest GMP in the U.S for 2010, same rank as the Metro's 2010 Census population. Dallas, Houston, and San Antonio ranked 5th, 6th, and 38th, respectively.

Austin was the fastest growing Metro in Texas year-over-year growing 7% to about $86 billion in GMP. The only other larger Metro in the U.S. to even come close to that growth was San Jose (17th) at a whopping 13.3% increase or nearly $20 billion. 

San Antonio was second in growth at 3.6%, followed by Dallas at 2.5%, then Houston at 1.6%.Austin and Houston each increased in GMP by roughly $6 billion.

GDP percent change in 2010 was 3.0% per the BEA.

http://www.bizjournals.com/buffalo/datacenter/gross-metropolitan-products-for-366.html

Austin's office market showing signs of recovery

Courtesy of the Austin Business Journal:

“The Austin office market saw a trifecta of positive developments in the third quarter with a dramatic boost in absorption, decrease in sublease and large corporate move-ins.

The shift is the best the local office market has seen since the recession began, according to Oxford Commercial’s latest quarterly report released Wednesday.

“I think you can now say that we’ve turned the darkest corner and have a stabilized market that has signs of further improving into the next two quarters,” Oxford Partner Kevin Kimbrough said.

Direct absorption for the office market in third quarter this year was 169,615 square feet, a dramatic uptick from third quarter 2009, when only 10,593 square feet was absorbed. The last time absorption was this high was in the fourth quarter 2008 when Austin had 341,022 square feet of positive absorption.

Kimbrough said this is the largest amount of space absorbed since the recession reached the market.

Absorption has been steadily increasing throughout 2010, from a negative 24,000 square feet to a positive 169,000 square feet just nine months later, the report found.

Sublease vacancies also have shrunk, the report found, considered a true sign of the market’s recovery because less employers need to offer up unused space, at the same time as more startups and growing companies snap up previously offloaded space. That in turn usually means more direct vacancy spaces will be leased moving forward.

Sublease space hit 846,000 square feet, the lowest in nearly two years since fourth quarter 2008 when the market was at 800,398 square feet. The sublease vacancy rate is now 1.96 percent.

Oxford's third quarter subleasing figures also match up with recent CB Richard Ellis data.

The decrease in the sublease space inventory is promising after most of 2009 showed available sublease space reached its highest mark since 2001, said Nate Stricklen, a CB Richard Ellis broker who compiled the data.

“The shrinking numbers could signal the return of demand, albeit slight, for office space in Austin, despite small increases in overall vacancy this quarter,” said Stricklen, a member of the tenant representation team, with brokers Charles Dixon and Erin Morales, that has leased more than 80,000 square feet of subleased space since October 2009.

As far as move-ins, the third quarter’s largest moves for companies going into new office locations including Hanger Orthopedics in a 75,000-square-foot spot at The Domain and Host Gator into a 31,000-square-foot space at 8100 Cameron Road.

There were about 10 move-ins and renewals over 15,000 square feet compared to only two large move-outs, the lowest in a few quarters: Unisys Corp. from its 52,000-square-foot spot at Monterey Oaks Corporate Park and Planview’s 45,000-square-foot downsize at the Park.

All direct and overall vacancy rates slightly decreased throughout all markets in Austin, with the only exception of a slight increase in the downtown area in its overall vacancy rate. That rate rose from 16.13 percent in second quarter 2010 to 16.48 percent in third quarter.

The overall vacancy rate in Austin for office is at 20.72 percent. Direct vacancy rate decreased for the second consecutive quarter to 18.76 percent and Class A direct vacancy rate decreased for the fourth straight quarter to 19.65 percent.”

 

Austin gained 3,800 jobs in August

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA gained 3,800 jobs last month lowering the unemployment rate by 10 basis points from last month to 7.2%, down from its peak of 7.6% in January 2010.  The growth is considered to be seasonal.  The largest contributors to job growth were the Professional and Business Services (1,300 jobs), Education and Health Services (900 jobs), and the Mining, Logging, and Construction (700 jobs) sectors.  No sector reported a net job loss.  The total number of non-agricultural employment in the MSA grew to 769,200 indicating a relatively strong annual growth rate of 2.5% making Austin the strongest performing Metro out of the 50 largest MSAs in the nation.  Finally, Austin's unemployment rate of 7.2% is still below the state (8.4%) and the national (9.5%) unemployment rates.

Dallas Beige Book Update

Here are the real estate related highlights from the updated Dallas Beige Book as of September 8, 2010.

"The Eleventh District economy expanded modestly over the past six weeks. The energy sector remained a source of strength, and agriculture, transportation services and staffing firms reported solid growth. Retailers said sales rose, but the pace of growth was slower. Reports from the manufacturing sector were mixed, but overall suggest a slowdown. In particular, construction-related manufacturers said demand was very weak as housing demand has retrenched and private nonresidential activity is almost nonexistent. Most respondents expect economic conditions to remain positive, although many expect slower growth through year-end. Uncertainty was prevalent in most outlooks.

Construction and Real Estate
Home sales continued to slide since the last report. Contacts noted demand was especially weak in the lower-priced segment of the market which had benefitted most from the homebuyer tax credits. Construction of new homes fell as large public builders scaled back. Outlooks are guarded for the rest of the year. Sales and construction are expected to remain weak, as the tax credit affected the timing of purchase decisions.

Contacts in the office and industrial real estate sectors said leasing activity remained subdued. Investor interest in nonresidential properties remains high however, and contacts say sales continue to edge up.

Nonresidential construction remains weak. Contacts reported a notable lack of private nonresidential projects. Public construction is the main source of activity for most contacts, but some expressed concern that such projects would subside due to budget constraints.

Financial Services
Financial firms said loan demand continued to trail off. Business lending was especially weak, and contacts said businesses lacked confidence and were unwilling to make financial commitments. Deposit growth was strong, and credit quality on outstanding loans was stable. Several respondents reported concerns over financial reform legislation and other political uncertainties. Earnings projections are flat for 2011, and some contacts were building up loan loss reserves in preparation for the coming year."

Austin lost 5,700 jobs in July

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA lost 5,700 jobs last month lowering yet the unemployment rate decreased by 10 basis points from last month to 7.3%, down from its peak of 7.6% in January 2010.  The total number of non-agricultural employment in the MSA grew to 765,800 indicating a relatively strong annual growth rate of 2.5% making Austin the strongest performing Metro in the U.S.  Finally, Austin's unemployment rate of 7.3% is still below the state (8.5%) and the national (9.7%) unemployment rates.

Austin gained 2,000 jobs in May

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA gained 2,000 jobs last month lowering the unemployment rate to 6.9%, down from its peak of 7.6% in January 2010.  This is well below the 5,000 job growth projection made in last month’s Job Growth update blog.  The total number of non-agricultural employment in the MSA grew to 767,700 indicating an annual growth rate of 0.5%.  Out of the total jobs gained, Leisure and Hospitality significantly beat other industries adding 2,600 jobs.  Financial Activities also saw a modest gain of 600 jobs.  Conversely, the Government sector lost 1,100 jobs and the Professional and Business services lost 800 jobs.  All other industries increased or decreased by no more than 300 jobs.  While the overall gains may seem positive, they are in line with seasonal patterns.  Next month, we should expect to see a loss of around 500 jobs based on the last few years’ figures.  Finally, Austin's unemployment rate of 6.9% is still below the state (8.0%) and the national (9.3%) unemployment rates.

Grand Prix is coming to Austin

As I’m sure most of you have heard, Formula 1 has announced they will be hosting the world-renown Grand Prix from 2012 to 2021.  A press release today confirmed that the State will be offering a 10-year incentive of $25 million per year it is hosted here.  Majority of effort to bring Formula 1 here goes to the State department after a year of negotiations with Austin just getting involved in the final few months of the deal being signed.  I spoke to a member of the Economic Development at GACC that reported the location is expected to build a race track specifically designed for the Grand Prix in the Southeast area of Austin.  This will be the first time Grand Prix will be on a newly constructed race course.  I’ll put my bet that the tract will be located near the airport around SH 130.  The city is in the process of hiring a private company to analyze the economic impact of this historical contract, which will be posted on here the moment I receive it.  

 

http://www.bizjournals.com/austin/stories/2010/05/24/daily39.html?ana=from_rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+bizj_austin+%28Austin+Business+Journal%29

 

http://austin.bizjournals.com/austin/stories/2010/05/24/daily24.html

 

Austin gained 2,800 jobs in April

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA gained 2,800 jobs last month lowering the unemployment rate to 7.0%, down from its peak of 7.6% in January 2010.  This is slightly below to the 4,500 job growth projection made in last month’s Job Growth update blog.  The total number of non-agricultural employment in the MSA grew to 763,200 indicating an annual growth rate of 0.1%, which had been in negative territory since June 2009.  Out of the total jobs gained, 54% was in Leisure and Hospitality, 25% was in Education and Health services, and 18% was in Professional & Business Services.  While the gains may seem positive, they are in line with seasonal patterns.  Next month, we should expect to see at least 5,000 jobs added based on last years’ figures.  Finally, Austin's unemployment rate of 7.0% is still below the state (8.1%) and the national (9.5%) unemployment rates.

Austin gained 4,600 jobs in March

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA gained 4,600 jobs last month lowering the unemployment rate to 7.1%, down from its peak of 7.6% in January 2010.  This is close to the 5,000 job growth projection made in last month’s Job Growth update blog.  The total number of non-agricultural employment in the MSA grew to 760,300 indicating an annual growth rate of -0.1%.  Out of the total jobs gained, 46% was in Leisure and Hospitality, 30% was  in Government, and 22% was in Trade, Transportation, and Utilities.  While the gains may seem positive, they are in line with seasonal patterns.  Next month, we should expect to see at least 4,500 jobs added based on last years’ figures.  Finally, Austin's unemployment rate of 7.1% is still below the state (8.2%) and the national (10.2%) unemployment rates.

What happened to the Industrial market last year?

Comparing 1^st Quarter 2010 to 1^st Quarter 2009

Total supply reached 73 million square feet resulting from the roughly 600,000 SF to new space added to the market.  Vacancy rose to 14.4% indicating a 9.8% or 1.3 percent-point increase from the first quarter of last year.  While vacancy has increased significantly, 60% of the rise of vacancy is due to speculative construction.  The predominate cause for declines experienced in the industrial submarket can be attributed to an overheating of the market with the secondary cause being a contraction in demand.  The demand for industrial space appears to be gaining strength, with nearly 40,000 SF of positive absorption reported this past quarter after experiencing 1.3 million square feet of negative absorption in 2009.  Construction also declined in response to the increases in vacancy with less than 81,000 SF under construction this quarter.  Rents experienced moderate declines of $0.20/SF and $0.43/SF for Warehouse/Distribution and R&D/Flex, respectively.  Overall, rents and occupancy rates appear to be stabilizing.

See the Industrial Reports Page for the full report.  Courtesy of Grubb and Ellis.

Best quotes:

While it is evident that leasing fundamentals have improved, the market is far from making a complete turnaround. Presently, there is 10.5 million square feet of industrial space sitting dark across the city holding vacancy at a lofty 14.4 percent. 

Even though many companies may expand profitability this year, it will be at least until 2011 before Austin experiences a rebound in leasing demand sufficient to fill the excessive amounts of vacant space left behind by the recent recession.

Forecast

·         Tenants will continue to take advantage of early renewal packages, including free rent, in order to reduce their overall occupancy costs.

·         New construction will be limited to build-to-suit development until excess space is absorbed and lending restrictions ease.

·         Asking and effective rental rates are expected to further decline before they reach bottom sometime late in 2010 or early in 2011.

·         Small owner/user sales activity will increase but the number of properties on the market will far outpace available buyers.

·         According to Angelou Economics, Austin’s economy will experience mild job growth in 2010 before returning to form in 2011, with employment increasing by 9,200 and 17,100, respectively.

Note:  The data analyzed surveys multi-tenant, single tenant, and owner occupied buildings at least 20,000 SF in size.  Other reports do not include owner occupied buildings, which results in a 30 million square foot difference in survey size.  Cushman & Wakefield reports a vacancy rate of 17.7% for the 4^th Quarter 2009 for its 43.8 million square foot database.

Austin home prices will increase in 1Q11

Austin home prices are anticipated to reach bottom by yearend 2010 according to a recent report released by the leading global provider of financial services technology solutions, Fiserv.  The report analyzes home price historical trend data and forecasts for more than 375 U.S. markets based on the Fiserv’s Case-Shiller Indexes, which is owned and generated by Fiserv, data from the Federal Housing Finance Agency (FHFA) and Moody's Economy.com.   

 

Austin is expected to have experienced a price decline of less than 5% from peak to trough as shown on the table below.  This fairs much better than most of the country (see photo).  However, prices are not expected to return to previous peak levels until the beginning of 2016.  

Austin Regional Outlook

The Austin MSA is part of to the Federal Reserve’s Eleventh District.  On March 3, 2010, the Federal Reserve released its current report (one of eight per year) on the national and district economy. Known as the Federal Reserve Beige Report, the Eleventh District’s overall assessment of the economy indicated “Economic activity improved further in the Eleventh District over the past six weeks. Firms across a wide range of industries continued to report slight increases in demand.  However, conditions in a few sectors, notably commercial real estate, financial services and construction-related manufacturing remained weak. Outlooks were generally more upbeat than last time.” 

Real Estate observations included, “new home construction picked up recently in response to relatively tight inventories and the first-time homebuyer tax credit.  In both new and existing home markets, sales of lower priced homes remained the strongest.  Sales of higher priced homes were weak, reflecting difficulties in obtaining financing for larger loans.  Builder outlooks were slightly more optimistic for 2010.  Commercial real estate activity remains depressed.  There is continued downward pressure on rents.  Office leasing activity is still falling, albeit at a slower pace. Demand for industrial space declined further in Dallas, but improved slightly in Houston.  Investment sales transactions remain low due to the tight lending environment, but contacts report that investors are watching closely for bargains.  Commercial construction activity is still weak and outlooks remain grim, with most contacts expecting no improvement until 2011.”

Financial comments included “Real estate lending remained scarce due to stringent regulatory requirements, and contacts at community banks expressed concern about the possible effects of these regulatory requirements on their ability to expand.  Some contacts said they were beginning to see an improvement in loan quality, with falling delinquencies and declining charge-offs.  The outlook remained cautious but some contacts were hopeful that they may see a pickup in loan demand by year end.” 

 

Labor Market noted “stable employment levels.” Manufacturing Market concerns were “outlook is still bleak, especially for manufacturers tied to commercial construction.”

 

This overall assessment of the economy indicates recovery has begun to occur in many sectors and outlooks are becoming more positive.  However, most experts expect a slow and modest Metro-wide recovery. 

4th Quarter GDP Release (Final Estimate)

The final GDP growth estimate for the 4^th Quarter 2009 declined from 5.9% to 5.6%.  Below are graphs and a link to the full story.

GDP figures are in billions of dollars

For the full story: BEA - GDP News Release

Second Convention Hotel is Coming to Town!

This past Thursday, Austin City Council members passed two motions to spur downtown growth and tax base, both sorely needed.  The first motion directed the City Manager to develop a plan to help break-ground on a second large-scale, convention hotel, similar to the 800-room Hilton constructed back in 2003.  Figures show that convention business grew slightly over 50% after the Hilton was constructed.  However, the investments made on the City’s behalf, similar to this recently proposed stimulus, fell short of projections (see graphs below).  This is partially explained by the small and spread-out convention package we offer to businesses due to our limited supply.   An expert in the business said “it’s tough to make a case for the additional hotel when Austin hasn’t drawn the projected benefit from the one it already has.  Even if you do this, what advantage have you created?  You certainly haven’t capitalized on any unique advantage to Austin.”  Personally, I think we should invest in a State-of-the-Art convention technology that is better than any other in the nation with a hotel that is designed in such a fashion that captures the tech-savviness of our great City setting us as an Icon for innovation and creativity.  

The second motion was to direct the City Manager to compile a $100 million transportation bond package to fund the improvement of roads, sidewalks, bike lanes, and trails.  While this will do wonders in boosting our image as a pedestrian friendly downtown, homeowners’ are likely the one’s to foot the bill with increase in property taxes to increase bonding capacity.

The full story: Austin Business Journal; Austin American Statesman

Austin gained 5,800 jobs in February

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA gained 5,800 jobs last month lowering the unemployment rate to 7.2%, down from its peak of 7.6% last month.  The total number of non-agricultural employment in the MSA grew to 756,400 indicating an annual growth rate of -0.6%.  More than half of the gain is due to government jobs.  While the gains may seem positive, they are in line with seasonal patterns (e.g. the IRS added staff for the tax season).   Next month, we should expect to see at least 5,000 jobs added based on last years’ figures, especially considering how crazy this SXSW was compared to last.  Finally, Austin's unemployment rate of 7.2% is still below the state (8.3%) and the national (10.4%) unemployment rates.

Austin lost 8,600 jobs in January

According to the Texas Workforce Commission, the Austin-Round Rock-San Marcos MSA lost 8,600 jobs last month bringing the unemployment rate to 7.6%.  The total number of non-agricultural employment in the MSA declined to 750,200 indicating an annual growth rate of -1.3%.  Half of the decline is due to retail trade jobs.  However, this is not all bad news.  In January 2009, we lost 12,800 jobs which shows we lost 33% less jobs last month than the same time last year.  Also, majority of the jobs lost was due to seasonal holiday hiring and firing.  Finally, Austin's unemployment rate of 7.6% is still below the state (8.6%) and the national (10.6%) unemployment rates.

GDP is now 5.9% for 4Q09

The second estimate of GDP released by the BEA this morning increased from 5.7% to 5.9%.  “The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment.  Imports, which are a subtraction in the calculation of GDP, increased. The acceleration in real GDP in the fourth quarter primarily reflected an acceleration in private inventory investment, an upturn in nonresidential fixed investment, a deceleration in imports, and an acceleration in exports that were partly offset by decelerations in PCE and in federal government spending.”

For the full story: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Consumer Confidence Drops to 46

Consumer Confidence fell to 46 in February, down from 56.5 in January (1985 = 100).  

 
One indicator of a recessionary economy is when the consumer confidence index falls below 50.  This drop can be contributed to many things, but I think it’s just a normal reaction to all the uncertainty surrounding federal budget deficits and health-care reform as well as the commotion being caused by the “Tea Party movement”.  A recent poll by The Economist shows that nearly one in five Americans, or about half of the Republicans, think of themselves as part of the tea-party movement.  As Bill Maher reported last Sunday night on his show, “A poll showed 90% of Teabaggers thought that taxes had gone up or stayed the same under Obama.  Only two percent thought they went down.  The simple reality is:  for 95% of working families, taxes went down. Only 2 percent of the people in a movement about taxes and named for a tax revolt, have the slightest idea about what is going on – with taxes.”  The poll below also hints to why Consumer Confidence plummeted. 

 The moral of the story is, don’t be too preoccupied on this bad news, as it seems most Americans are just scared because they just don’t know what is going on and what will happen.  Nothing wrong with that, it happens to us all.

For the full story: http://www.conference-board.org/economics/ConsumerConfidence.cfm

The New Norm

“Note that returns from 1985 to 2009 were above the historical norm despite the fact that the premium on equities was negative during the last ten years. That suggests the return above Treasuries from 1985 to 1999 was extraordinarily high. Indeed, stocks rose some 800% over the period, in nominal terms. During the 15 years from 1970 to 1985, stocks rose about 80%. Very peculiar.” - The Economist FreeExchange.

The data above suggests that investors will start looking elsewhere to invest their money with real estate likely being a favored option.

To All You Nay-Saying Republicans

I’m neither Republican nor Democrat; I just thought it was a nifty title to give this graph.  This was released February 12, 2010.

Austin Foreclosures Are on the Rise

March has1,038 properties posted for foreclosure indicating an increase of 26% from March 2009's postings.  In the 1st Quarter 2010, 3,958 foreclosures have been posted, which is 36% higher than the same quarter last year.  However, in last month's foreclosure press release, majority of the postings are repeat foreclosures from 2009, so the percentage increase is an overstatement of the actual situation in Austin. In addition, when comparing the amount of foreclosures to the total volume of homes in Austin, the increase in foreclosures is relatively insignificant as there are too few foreclosures occurring for prices to be affected at the masses.  Residential real estate appraisers have reported that you'll find certain neighborhoods, usually first-time and low-income home-buyers, that you can find some modest decrease in price (up to 10%), but for the most part, home sale prices have remained relatively stable during the recession when compared to the nation.

At the end of 2009, the Austin MSA had an total household count of approximately 614,640. If you annualized the first quarter's postings and divide it by the total number of households, you'll see that the annual foreclosure rate is about 2.5% (rounded down since household counts have gone up slightly in the first quarter).  While some my consider this extreme, it is far lower than most metros have indicated.  Below is a breakdown for the March 2 auction followed by the realized percentage increase from March 2009:

Travis County: 667 postings; 23%
Williamson Count: 403 postings; 23%
Hays: 151 postings, 51%
Bastrop: 78 postings, 30%

Senate Budget Committee

This past Tuesday, the Senate Budget Committee met with three highly reputable economists that are also professors at U of M, MIT, and Georgetown, respectively, to discuss the problems with the deficit.  Head of the committee, Senator Kent Conrad, clearly labeled what Congress is doing to the American Public.   The goal of the committee is to bring the budget to 3% of GDP in five years and to balance it in 10 years starting from the day the budget is finalized.  The challenges facing the government could and well be the most important challenges we have faced to date.  Senate Conrad also defined the differences between the different terms thrown around for national debt.  See below. 

Public debt, money borrowed from public (includes anyone who purchases U.S. bonds and treasury notes), is currently at 60% of GDP.  Gross debt is at 90%.  Difference between the two is that gross debt also includes what’s owed from trust funds, Medicare, social security.  The budget focuses on gross debt, as all debts must be paid.  So, from a budgetary standpoint, debt can only be paid by current income.  There is a real budget consequence when entitlement programs were producing more money they needed, then the process reversed, and now are spending more money than the trust accounts are taking in.  This has happened to Social Security and Medicare, which are both cash-negative, TODAY. 

Economists start with public debt because gross debt understates the situation.  From a budgetary standpoint, future commitments have covered by a trust fund (secured income).  So they add up all future explicit commitments to some large number that doesn’t apply to today’s debt (it isn’t a debt until the commitment is due).  Furthermore, public debt numbers are readily available and fairly easy to quantify.  As Dr. Johnson put it “The great thing about being the United States is that we are the only reserve currency particularly given the situation with the Euro zone”.  This means that the market will allow us to run up more debt at low interest rates as we are the only safe option out there.  This is also extremely risky because that means the fate of the world’s economy lies in American’s hands.  The committee goes further into detail on how there are many implicit liabilities from internal debt (exchange of funds between government accounts) that haven’t been quantified, which is on the list of things-to-do for the experts.

The methodology used by the economists is to start with public debt, find out what is owed and what the market will pay for issuing new debt, forecast the budgetary repercussions contingent upon future liabilities and different scenarios around that model.  If we have a few more crisis, the model will need to be changed to reflect Gross debt, but for the current time, the country should focus on the public debt.  By establishing a fiscal commission now to begin creating medium-term fiscal framework, the financial industry can begin clearing the clouds of uncertainty.  A part of why we get what we get is because we don’t address the issues immediately and allow for uncertainty to remain in the marketplace. 

Texas is Top Exporter in U.S.

Courtesy of ABJ:

For the eighth consecutive year, Texas ranks No. 1 nationally in exports, according to a statement from Gov. Rick Perry. Texas exports totaled $163 million in 2009.  The top recipients of those exports included Mexico, Canada, China, the Netherlands and Korea.

Sales Tax Revenues Decline Year-over-Year

After internal adjustments are made to the data, Austin indicated a 2.4% decline this month in sales tax revenue allocations compared to the revenue collected in February 2009.  Fort Worth and San Antonio were down 0.2%, Dallas was down 4.2%, and Houston was down 12.4%.  These cities will likely see the declines in sale tax allocations reflected in increased vacancies (your lease is terminated because you can’t make enough sales to pay your rent). 

While the majority of MSA is experiencing declining retail sales, San Marcos and Kyle posted positive gains of 2.7% and 25% this month respectively compared to February 2009.  The increase in San Marcos was the first in seven month.  Kyle’s significant increase is predominately due to the completion of the second phase of Kyle Crossing, 133,000 SF Target as well as smaller tenants including Sally Beauty Supply, Radio Shack, United Heritage Credit Union, Castle Dental, Seton Medical Clinic, and Kyle Family Medical clinic.  The entire shopping center consists of 925,000 SF of gross leasable area (GLA).   Therefore, Kyle’s increase in sales tax revenues is a poor indicator of the health of the retail sector there unless sales tax allocations are adjusted from an expected sales tax revenue benchmark to find out true performance.  The benchmark would be derived from the market.  Too bad the data isn’t reported that way publicly.

The Scariest Employment Graph of the Great Recession

Courtesy of The Economist:

 

But according to the economist Edmund Phelps, the innovative potential of the U.S. economy looks limited today. In a recent Harvard Business Review article , he and his co-author, Leo Tilman, argue that dynamism in the U.S. has actually been in decline for a decade; with the housing bubble fueling easy (but unsustainable) growth for much of that time, we just didn’t notice. Phelps and Tilman finger several culprits: a patent system that’s become stifling; an increasingly myopic focus among public companies on quarterly results, rather than long-term value creation; and, not least, a financial industry that for a generation has focused its talent and resources not on funding business innovation, but on proprietary trading, regulatory arbitrage, and arcane financial engineering. None of these problems is likely to disappear quickly. Phelps, who won a Nobel Prize for his work on the “natural” rate of unemployment, believes that until they do disappear, the new floor for unemployment is likely to be between 6.5 percent and 7.5 percent, even once “recovery” is complete.

U.S. international trade deficit climes 10% in December

The BEA released data this morning on America's trade deficit, as of December: 


“December exports of $142.7 billion and imports of $182.9 billion resulted in a goods and services deficit of $40.2 billion, up from $36.4 billion in November, revised. December exports were $4.6 billion more than November exports of $138.1 billion. December imports were $8.4 billion more than November imports of $174.5 billion.”

The Economist had this to offer:

As the economy recovers, both imports and exports are growing. But imports are growing faster, and America's trade deficit is therefore widening out from its low recession levels. Where current account deficits are concerned, public hand-wringing has overwhelmingly focused on China, and particularly on the effect its currency policy has on the relative price of its exports. But China is not driving rapid growth in the trade deficit. Imports to America from China returned to more-or-less normal levels as of December, but exports to China hit their highest level ever in that month. What is pushing up the trade deficit is petroleum imports.

 For much of the previous decade, the petroleum deficit hovered at a level around a third of the total trade deficit. It's now over half of the total trade gap.  American demand for petroleum is relatively inelastic, so rising oil prices will tend to push up oil imports and the deficit. And recession aside, oil prices have trended upward for most of the past decade. But for that America's current account would look a lot more balanced.

For the full press release from the BEA, visit: http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

Home-Buyer Behavior

More good statistics released by NAR:

This is why I’ve become a big advocate for social media campaigning.  If they see an agent on the internet, and you provide the best market data and listings, they’re going to go with that agent.

Civilian Employment During Recession Since WWII

Courtesy of the Dallas Fed and Economist FreeExchange:

This is why people have been panicking.  As you can see, we grew in population but only gained a handful of jobs.  By comparing the two graphs below provided by the U.S. Census Bureau, you can see why some are calling it the  “Bubble Decade”.

 

 

                               

The deficit isn't so bad...

This was too good of an article from the FreeExchange today:
HOW much should we worry about the budget deficit? Paul Krugman is not terribly concerned, he claims economists and markets aren’t either: 
Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe. 
Like Mr Krugman, I don’t worry so much about short-term, discretionary spending. We are still in a very fragile recovery period. Cutting spending now could indeed prolong the recession and result in an even worse fiscal position. The sudden hysteria is perplexing, but serious concern is long overdue.  
The long-run budget issues are very worrying. Economists tend to take a more nuanced view about debt. Many agree that running a deficit is not necessarily a huge problem; so long as the size of national debt stays low enough that interest payments do not exceed GDP growth, things are manageable. When that is the case you can keep issuing debt and making interest payments without raising taxes or cutting spending. Then, in principle, you can run deficits indefinitely. But if investors worry that the debt will become unmanageable, or outpace economic growth, they will become less inclined to buy a country’s debt. The government then must offer higher interest rates for its debt, and interest payments then do become a burden on taxpayers. That lowers growth even further. It then becomes tempting to inflate the debt away (which becomes a non-trivial concern if Fed independence is further undermined) and interest rates rise further.  
Granted, suggestions that America’s economic policy is on the fast track to resembling Argentina are hysterical. But a problem still exists; the amount of debt projected to come from Medicare and Social Security in thirty years is unsustainable, for reasonable levels of GDP growth and likely interest rates. Mr Krugman points out that America must address health care spending. I’d also add entitlements to the list. Leaving it to the next decade, as Mr Krugman suggests, would be a mistake. The sooner health care and entitlement spending are fixed the less expensive the solution will be. Also, Social Security’s long term solvency issues add to uncertainty. I’ve heard people of all ages say, “Well, I can’t count on what I’ll get from Social Security.”  
So long as Social Security finances remain a concern, making appropriate retirement planning and saving decisions is very difficult. I’ve heard it argued that because Medicare is a bigger threat than Social Security we can ignore the latter. But, that’s like saying don’t bother to fix a broken leg if your patient has cancer. That broken leg can still cause an infection and kill you.  
Cutting current spending would be a terrible idea, but thoughtfully addressing entitlements addresses the long-term problems now. It need not even affect benefits to current retirees or impinge on the recovery. It does send a clear, credible message to markets that America can keep its debt under control. Alan Greenspan remarked on Meet the Press this weekend: 
I think the thing that disturbed me most in the last week or two was when the discussion was involved in, I believe, in the Senate on the issue of forming a commission--a congressionally-authorized commission, as I read it, there was a 97-to-nothing vote to exclude Social Security from the deliberations of that commission.  That said to me that we have gotten to the point in this country where spending is untouchable.  I have no doubts that we have to raise taxes in order to close this huge deficit.  But we cannot do it wholly on the tax side because that would significantly erode the rate of growth in the economy and the tax base, and the revenues that would be achieved would be far less than anybody'd expect.  We have to recognize the fact that one of the things that we have to do, as tough as it's going to be, is that benefits are going to have to be paired in conjunction with tax increases to resolve this very serious long-term budget problem.  
What sort of message does that send to markets about America’s commitment to fiscal responsibility? 
The next time America finds itself in a recession it may not be able to issue debt so easily to boost its economy. Also, America’s domestic saving rate is very low. It does not provide itself with enough capital to fund growth and expansion. America relies on foreign capital to feed growth. If that dries up, Americans will either have to seriously cut back on consumption or concede that the America economy will not grow at the pace it once did.  
So why then, as Mr Krugman asks, are investors still willing to purchase American debt at such low interest rates? Does this mean markets are not worried about America’s long-run fiscal outlook? Maybe, but I doubt it. Some investors always crave “risk-free” assets. American debt still, to a large degree, is the best “risk-free” option. What else is there? Eurobonds don’t look so good at the moment. But the current lack of better alternatives can not be the justification to not get your financial house in order.