Register Real Estate Advisors

Here is a great piece by Morgan Stanley’s Chief Economist, Brian S. Wesbury, and Senior Econimist, Robert Stein. Special Thanks to Gary Wulf for sending this out!

Everyone knows housing is still weak. And, everyone knows jobs are growing, but not fast enough to seriously lower the unemployment rate, which stands at 9.1%.

Everyone also knows real GDP has expanded for nine consecutive quarters, at an average annual rate of 2.5%. No one is satisfied with this; but it is a recovery, not a recession.

So, how can real GDP grow when housing and employment are so weak? Something must be going right…somewhere.

Well, it turns out that the strongest part of the economy has been business investment. Equipment and software investment (Cap-Ex) has grown five times faster than GDP – 12.9% at an annual rate over the past nine quarters.

The strongest category has been transportation and related equipment (trains, planes, trucks, etc.), up 43.3% at an annual rate over nine quarters. Computers and peripheral equipment (including servers, printers, routers, etc.) are also up 26.2% at an annual rate in the past 2 ¼ years. All of this data is adjusted for inflation, and what it shows is, contrary to popular belief, businesses are spending and investing. Moreover, businesses investment is a bigger share of the economy than housing.

Consumer spending is up, too, despite weak confidence data. After adjustment for inflation, consumer spending is up 2.2% at an annual rate over the past nine quarters. In a shocker, real furniture and household durable equipment spending (refrigerators, washing machines, etc.) increased by 5.0% in the past year and now stands just 0.3% below its all-time high from late 2007. Despite weak housing, and worries about credit, household durable spending has rebounded to pre-crisis levels.

Last we looked, the only help government is giving businesses is a more rapid depreciation schedule – which is a tax incentive for investment. Yet, trillions are being spent trying to stimulate housing and employment. In other words, what government is trying to boost by spending is going wrong, but where it uses tax cuts things are looking up and going right. If government could find the courage to have faith in markets and not itself, more things would be going right.

That said…it seems clear that the economy is finding enough strength in business investment and consumption to offset the pain caused by housing and employment. We expect the scales to remain tipped toward growth in the quarters ahead and look for 3% real GDP growth in 2012.

This growth could accelerate if government spending and regulation were reduced in a significant way. Housing already looks to have found a bottom. Imagine what happens when it finally turns up? Buck up, not everything is going wrong. In fact, there are many things going right in the US economy.

COLLEGE STATION (Real Estate Center) – There are seven reasons
business owners do not want to hire right now, according to Real Estate Center
Chief Economist Dr. Mark Dotzour writing in today’s REC
blog.

• Complete
  uncertainty regarding the future cost of health care for business owners
• Two
  thousand pages of bank regulation that has yet to be enacted
• Regulation
  of health care and health insurance
• Regulation
  of off-shore oil drilling
• Regulation
  of oil-shale deposits
• Complete
  uncertainty about future income tax rates
• Complete
  uncertainty about future capital gains tax rates

“When business owners are unsure about their future, what do they do?
Nothing,” writes Dotzour. “They just try to survive until the storm
is over.

“They also hoard cash, like almost $2 trillion at this point. Our
economy is not going to recover until businessmen and women regain confidence
in the future opportunities in our country.”

Great article from Brian S. Wesbury – Chief Economist and Robert Stein, CFA – Senior Economist, from Morgan Stanley. Thanks to Gary Wulf for the link. You can read the source here.

Two-hundred and thirty-five July 4th’s ago, the United States became reality. While there have been plenty of stumbles along the way, other than during the Civil War, doubts about its continued existence have been few and far between. Lately, however, government spending and debt levels have created a mainstream fear that the US is possibly on its last legs – destined to become a future version of Greece.

We don’t agree and, no, we are not sticking our heads in the sand. Our problems are clear. The budget deficit will be about 8.5% of GDP in 2011, down slightly from 9% in 2010 and 10% in 2009. These deficits are impossible to sustain over the longer run.

Meanwhile, the total public debt of the US is now $14.3 trillion and future promised, but as yet unfunded, Social Security and Medicare benefits amount to about $60 trillion in present value terms. Combined, this $75 trillion is roughly five times annual GDP. With numbers like these, how could we not think serious, economy-threatening problems are on the way?

Well, for one thing, the very obvious problems in Greece (and other countries and the states) and the fact that politicians can’t hide from the Internet are forcing the issue. Second, the political landscape in the US has changed – perhaps because of point one. Third, the solutions are relatively simple in reality, even though very complicated politically.

Part of the solution is higher revenues, and this will happen even if tax rates are not increased. In the past 12 months, revenues have climbed by about $220 billion over the previous 12 months – or, about 0.5% of GDP. We expect revenues to continue this trend, rising from their current level of 14.5% of GDP back to about 18.5% of GDP (a 4% move).

Meanwhile, current debt-limit negotiations are likely to cut federal discretionary (non-entitlement, non-interest) spending. In the 1990s, discretionary spending fell from about 9% of GDP to 6%. So let’s say, we go from 9% today to 7.5%, which could be a “low hurdle” given the eventual reduction in operations in Iraq and Afghanistan. Combining this 1.5% of GDP cut with the 4% rise in revenues (total of 5.5%), could bring the annual deficit down to 3% of GDP.

Of course, that still leaves the long-term entitlement problem. But even there we can see the outlines of solutions looming in the distance. For Medicare and Medicaid, which are much bigger problems than Social Security, we think ultimately the forces of smaller government win. We do not know whether it will be in 2012, 2016, or 2020. But one of those elections is likely to result in a Republican in the White House with control of both the US Senate and House. And at that point, they can enact major reforms along the lines of some recent proposals to turn Medicare into premium support and turn Medicaid into block grants to the states.

Parliamentary rules will allow the GOP to enact these changes with only a simple majority in the Senate (with no chance for a Democratic filibuster). And to reverse these reforms, because it would make future budget deficits larger, Democrats would need 60 votes in the Senate!

On Social Security, any change requires 60 votes in the Senate. This means tax hikes (to fill the gap) are as much in play as benefit cuts and this is why it will likely be put off for many years into the future. In the meantime, news stories suggest even AARP is now willing to consider some reductions in benefits. In other words, fiscal reality is beginning to bite.

In the end, the road to fiscal redemption is a long one and we’ll be on it for many years. But we think the ultimate destination will be smaller government and more manageable deficits than most investors realize.

View the original newsletter here.

By Brian S. Wesbury-Chief Economist and Robert Stein, CFA – Senior Economist – First Trust Advisors LP

Imagine that Congress passed a $50 per hour minimum wage. Ridiculous, we know, but the end result would be a sharp rise in the unemployment rate and real damage to many businesses. And while everyone would know that this increase in the unemployment rate had nothing to do with monetary policy, the Federal Reserve, under Chairman Bernanke, would apparently try to fix it by pumping money into the system to bring unemployment down again.

How do we know? Because last week the Fed justified another round of quantitative easing by arguing that the economy was growing more slowly than it should. But it is fiscal policy (not monetary policy) that has acted like a ball and chain – holding back the economy and keeping unemployment high.

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After this momentum-shifting election, we are trying to discern what this means to the economy in general and the real estate market in particular. This well written article prepared by Morgan Stanley has done as good of a job as any I have seen. Gary Wulf sent this to us. Thanks Gary.

Introduction

On Election Day, United States voters spoke with unmistakable certitude. Republicans rode an antiincumbent, anti-Washington and Tea Party-driven wave to retake the House after four years in the minority, netting at least 61 seats, easily clearing the 39 needed for control. With several states too close to call as of Wednesday morning, the Senate will remain in Democratic hands. However, Republicans also managed significant gains there as well, netting at least 6 seats to reduce the Democratic advantage to 51-47, with 2 races still undecided as of Wednesday morning. This watershed election heralds a return to a divided government where Democrats and Republicans will be forced to deal first with each other if they are indeed going to deal with America’s problems.

After the existing Congress completes business in the November/December “lame duck” period, the 112th Congress will take the reins in January. The conventional wisdom is that a divided Congress will produce very little in the way of legislative accomplishment. However, the inherent risk in doing nothing is a weak legislative record on which to run for re-election. President Obama and Congress will surely be mindful of this, as the 2012 election looms. That risk is even more pronounced in the current environment where the electorate clamors for solutions.

Thus, it is quite possible that after the dust settles and the two sides have had time to stake out their positions in the new Congress, both parties may realize that to govern effectively, they must agree on something. While agreement is likely to remain elusive in many areas where the chasm is simply too wide to bridge, limited compromise could be found in a few areas, including energy, tax, trade and immigration.

This report provides a look ahead, introducing the new leadership team that will likely control the houses of Congress, previewing the “lame duck” legislative period, and examining the issues that will drive the agenda in 2011 and beyond.

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Kevin Price of 650AM’s America Lifestyles program interviews Shannon Register, owner of Register Real Estate Advisors, about the current state of the real estate market in Houston and how she overcomes the state of the economy to move her client’s homes. Aired on 8-5-10 on 650AM “America Lifestyles” in Houston, TX.

NEW YORK (Forbes.com) – Texas’ four major metros are in the top ten fastest-recovering cities nationwide, according to Forbes magazine.

Forbes ranked San Antonio the second fastest recovering city in the country, Austin the third, Dallas–Fort Worth–Arlington the sixth and Houston–Sugar Land–Baytown the eighth.

The magazine attributed their relatively quick recovery to San Antonio’s and Austin’s high number of municipal jobs, Dallas’ thriving technology industry and Houston’s energy sector, as well as the state housing market’s ability to remain stable while other states’ markets crashed.

“Texas didn’t have as big of a boom,” said Dr. Jim Gaines, research economist at the Real Estate Center at Texas A&M University. “So we’re not having anywhere near the kind of bust.”

El Paso and McAllen-Edinburg-Mission were also placed within the 100 fastest-growing MSAs, ranking 43rd and 48th, respectively.

Forbes ranked the country’s 100 largest MSAs according to each area’s September unemployment rate and foreclosures, gross metropolitan product, home prices and sales rates.

AUSTIN (Marcus & Millichap) – Although the economic downturn in Austin is expected to subside in the fourth quarter, Class-A apartment owners will face challenges into the first half of next year, according to a fourth-quarter apartment research report by Marcus & Millichap.

Homes are becoming increasingly affordable, which will likely entice some renters into ownership in the coming months.

Following are some of the most significant aspects of the Austin apartment research report:

• Payrolls are anticipated to expand in the fourth quarter, limiting job losses in Austin this year to 5,000 positions, a modest 0.6 percent decline. Since the dot-com recession, the market has added nearly 130,000 jobs.
• The pace of development in Austin will remain robust in 2009 as 9,900 units come online. A slowdown in permitting activity and thin development pipeline suggest a significant decline in construction in 2010.
• The addition of new stock will underpin a 360-basis-point increase in vacancy this year to 11.3 percent. Despite the rise, demand for apartments is expected to tick up 2.5 percent.
• Asking rents are forecasted to end the year at $852 per month, a 2.1 percent decline, while effective rents are projected to fall 4.7 percent to $747 per month.

NEW YORK (Forbes.com) – Dallas, Houston and Austin are among the top four U.S. cities in which to earn a living, according to Forbes Magazine.

The magazine found Dallas to be the most desirable city in the nation to live and work, while Houston was second and Austin came in fourth.

Among the best reasons to take up residence in Houston or Dallas, according to Forbes, is the number of top-ranked companies headquartered in each city: 38 and 15, respectively.

The rankings were determined by median income, cost of living, job growth and the quality of the business environment.

COLLEGE STATION (Real Estate Center) – The Texas economy is in a deep recession but is still weathering the downturn better than the nation’s economy. The state’s economy lost 274,600 jobs from June 2008 to June 2009, an annual job loss of 2.6 percent. Over the same period, the U.S. economy lost more than 5.8 million jobs or 4.2 percent of its total nonfarm jobs.

The state’s seasonally adjusted unemployment rate rose from 4.8 percent in June 2008 to 7.5 percent in June 2009. The U.S. rate rose from 5.6 percent to 9.5 percent during that time.

Only two Texas industries (education and health services and leisure and hospitality) and the government sector had more jobs in June 2009 than in June 2008. Nine industries had net job losses over the same period.

Only three Texas metro areas had positive employment growth rates from June 2008 to June 2009. Twenty-three metro areas had net job losses. Odessa ranked first in job creation followed by Killeen–Temple–Fort Hood and McAllen-Edinburg-Mission.

The state’s actual unemployment rate in June 2009 was 8 percent. Amarillo had the lowest unemployment rate followed by Lubbock, Midland, Abilene and Texarkana.

The complete Texas monthly economic review is available on the Real Estate Center’s website.