What Will Future Generations Contribute to Our Economic Development

The Kaiser Foundation recently published a not-so-surprising report about increased media consumption among 8-18 year old kids.  The KFF survey, as you probably expected, demonstrated that overall media consumption has risen significantly in this age group.  However, it's equally important to note that TV viewing remained fairly stable, as did book reading.  So while others reprint the study's findings and emphasize deterioration in grades among heavy media users, I'd like to go ahead with the alternative hypothesis that "The kids are alright" -- a line more or less straight from "Talkin' bout my [dad's] generation."

How is this relevant to us?  Well, for the same reason that other business-related media sources are discussing this topic: The kids are our future and they've got plenty of disposable income, family spending influence, and time on their hands (not to mention their potential future lifetime purchasing behavior, which is quite valuable to businesses catering to teens).  Duh!  Like, seriously, it's so lame I had to even point that out.  But then it's also important to me because, as you can quite clearly see in my last sentence, I am now part of the adult ruling class -- inept at capturing an even remotely passable tone of today's teen language -- and frankly, somewhat frightened about our lack of connection with teens today.  As I work with fellow community leaders an real estate professionals in my own neighborhood, it's become clear that we had better work with the kids who are often vandalizing private property and potentially threatening our local businesses, or else see our community deteriorate in the future.  To better work with them, of course, we need to better understand them and relinquish some of our perceived control (which is mostly futile anyway, in my opinion) -- in other words, genuinely try to collaborate.  This begins with learning to appreciate their worldview and how it may be different or similar to ours.

Furthermore, let's look at the ways they develop that worldview, via media consumption patterns and application to other aspects of their lives.

In our post-information age, we often like to think we've somehow progressed beyond the simple need to produce and present information as a means to advance our collective knowledge and innovation base -- yet this remains a critical focus in much of our lives.  The mere availability of information in a disorganized and uncontrolled environment arguably remains one of our biggest hurdles to effectively utilize media to enhance knowledge on a widespread basis. (Yes, media companies do indeed organize information, but typically as a sole means to meet their demand feedback loop, which often contributes to bias and closed-mindedness).

If increased media consumption is indeed acting more as a distraction or mindless escape to our youth (and their parents), then maybe we ought to focus more on enriching it to promote intellectual curiosity.  Why should a teen's grades begin to fail because he/she spends more time taking in media presentations?  I can't fathom why, twenty years into the information revolution, we haven't found a way to make learning more stimulating -- unless we have and we just don't realize it (see, for instance, the current dialog about how we are already using the all-new iPad and its promise for mobile computing).

The three questions we need to ask are:

1.  Are we evaluating the wrong measures of learning, by failing to account for positive aspects of increased media consumption;

2.  What ever happened to our once strong cultural respect for the venerable fourth estate (great post about financial coverage here) and the ongoing value of creativity expressed through contemporary art or, better yet, direct observations about pop culture; and

3.  Why are we highlighting the perils of media consumption, rather than focusing on opportunities present in this finding?  We should be taking notes on the popularity of interactive and multi-platform media in the commercial space, typically developed to either enrich private sponsors' marketing opportunities (i.e. click-throughs, surveys, etc.) or to enhance the value of an entertainment franchise (i.e. Star Wars, Lost, Avatar, Nine Inch Nails, and others using ARGs or similar).  What's wrong with using these examples to promote better parallel learning mechanisms?  (And yes, I know that some are doing this, but why not en masse?)

Just as when I was a student in the 80s/90s being told to beware outdated maps in the library, or assertions about scientific findings that were since disproved, kids today should be encouraged to forge their own learning paths to some extent.  From the top-down perspective, we could use closed captioning or voice-/ video-enhanced text at an early age to help with language acquisition.  This could then be paired with a bottom-up approach that enables students to seek ways in which they can explore related media (for fun or learning) or perhaps contribute their own interpretations through wikis and discussion boards.  Meanwhile, this could better train teens to seek contextual clues to the often dreaded classic literature, history, humanities, or boring science lessons -- which in turn better promotes the notion of democratized and engaged learning.

I'm a little disappointed that the study emphasizes the fact that parental media rationing is key to getting kids back on track.  Instead, what if parents and teachers did a better job of engaging with their kids in more enriched media consumption?  As a kid who grew up on the tail-end of gen X, I see the same perception wall that hindered communication about media consumption in the 80s, where it was too often viewed as a purely recreational activity in one's leisure time that crept into more productive activities.  This attitude contributed to a popular uproar over Ronald Reagan's observation that video games should be used to develop the skills necessary to our military -- how long did that view take to institutionalize, 20 years?  Or my parents' early lack of understanding about my music consumption habits, which helped create a passion that I leveraged into more critical interpretation of media -- I still benefit from this as an adult.  And would you really complain that a future environmental biologist or investment banker is glued to Discovery Channel or CNBC as a teenager?  What better time has there been to learn from available media, and at the same time teach kids to analyze and understand the source.

So this just looks to me like the saga continues between kids and their parents, who "just don't understand," as stated by one of my dad's favorite actors, Will Smith.  Hey, wait a minute, I thought he was one of us....

Latest Phoenix Home Sales Data -- March 2010

I can't help but be a nuisance when it comes to this kind of information: http://bit.ly/cU7dcm.  But seriously, the story could have been better reported.  And just in case the paper deletes my comment, here it is:

...Rather than seeing a detailed report that breaks out different price ranges, is it safe to assume the following:

Foreclosures are continuing to occur across the board with single-family homes and multifamily. This in turn disproportionately affects multifamily units, which almost always lag single-family homes in the greater Phoenix market. Add to this the fact that excess inventories are finally coming to market in the multifamily sector and it's a double whammy for condos/townhouses.

Meanwhile, stability in the employment market is bringing buyers back to the table, while at the same time having the unintended consequence of more short sales or strategic walk-away activity. Since the fringes of town already saw prices drop so significantly last year, they are now starting to stabilize. Thus, price volatility is going down in the burbs, but still not increasing like more established neighborhoods, as people simultaneously become more selective in terms of location. Thus, we can now all breathe a sigh of relief that the housing crisis is over, totally ignoring the fact that it's an asymmetrical "recovery."

And finally, how about the biggest elephant in the room, which is the federal tax incentive set to expire in April/June, combined with the end of the Fed's mortgage purchase program. It seems that there are plenty of reasons to lock in those purchases and mortgage rates now, rather than a few months from now, which means we'll probably see the same positive numbers for a couple of months. But what do 3Q and 4Q 2010 hold in store for us? I wouldn't be willing to bet on it.

Not at all factually based, but the article left us to guess what was going on...... How did I do? And if you really appreciate my perspective, then by all means, I invite you to check out my blog -- where I somewhat casually try to cover this kind of information: http://bit.ly/9YQJoe.

US Retail Property Gouged by Record Vacancies - CNBC

US Retail Property Gouged by Record Vacancies - CNBC

E&Y Says Distressed Acquisitions to Pick Up in 2011, Not 2010

I couldn't have said it better myself, although I will admit that in the last year and a half I thought that we would see an uptick in distressed buying by 3Q of 2010.

An important note on this activity is that, to date, many deals are still happening off-market and debt is slowly trickling back into play -- at least that's been my observation.  What are you seeing for the market?  Will transactions rise to any significant level in 2010, or are investors still waiting?  My guess is that it depends on the market, where truly undervalued deals in locations with high barriers to entry are already transacting again.  But 2011 fits my estimate of increased buying in speculatively developed suburban markets that are finally seeing their fundamentals stabilize.

Here's the Globe Street article:

Home Ownership and Community Wealth

Felix Salmon wrote an excellent post on Reuters today, regarding the rationale for a sustained bear market in housing and common public misgivings about home ownership:

http://bit.ly/buWCHt -- That's what I'm talking about, except to say that an increased rate of home ownership is detrimental to the economy, per se.  It all depends on how you prioritize different economic factors.  If you value productivity above all else, then a more mobile workforce is certainly better in our economy -- but this doesn't seem to matter nearly as much to most communities as it does to the ones where business is centered.

I'd also like to add that for many people, the anchoring effect of ownership is comforting when, in fact, we are taking ownership of our property rather than merely paying endless debt.   One question that I would add to the research is how many people realistically plan/want to stay where they are.  Not only can ownership help provide financial security for the individual home owner, but it can create stability in the regional market.  The latter effect is negated when people choose to move every 5-7 years, but perhaps that trend will also abate in the near future.  Thoughts?

Krugman, Palin, and the Real America

In Paul Krugman's recent post to his NY Times blog, he decided to take Sarah Palin's bait and react to her disparaging remark about the eastern U.S.  Following is my response, which I hate to admit serves to explain much of the Tea Party sentiment being embraced in the west.  Where I diverge from the Tea Partiers, however, is that I propose a different response (not to mention a very different outlook on most issues).

While I can't declare hatred against any region, I think that people in most of the western states should indeed take greater ownership of their states' economies and resources, rather than continuing to operate through the old guard on Wall Street.  Here's why I think we should become a little feistier and provincial out in Palin's "Real America:" We need to wean ourselves off of our absentee landlords.

So rather than snapping back at Palin for her crude lashing, I hope I can convince you to consider that our present economic situation (and commensurate rise in so-called populism) has several parallels to the outcomes of past eras marked by significant growth in the western U.S. -- most notably in the late 1800s (see "People's Party").

As a resident of Arizona, it's tough to ignore how the housing bubble was essentially the greatest transfer of wealth in my lifetime here -- in the end, most benefiting the bankers who facilitated the mortgage transactions, and with the most heinous acts (or lack thereof, i.e. oversight) occurring behind the scenes in our nation's banking capital far away from here.  From about 2003-2006, many homeowners foolishly bought into and helped contribute to the rapidly escalating housing bubble, thus trapping themselves into an unreasonable personal debt situation without any contingency plans for when the market abated or crashed (and now even being convinced by the banks that walking away from their overpriced mortgages is immoral, despite having legal protections to do so).  We generally acted like pawns who were convinced to ignore common sense and our own self interest, while charlatans took payments for services rendered and then turned around to the broker dealer community to unload much of the underlying investments on "qualified investors."  In this sense, there were two primary demographic groups most impacted: the young adults who traditionally enter the housing market at whatever time in life society deems them as having "arrived;" and then their grandparents who once had a nice nest egg in their pension plans or advisor-assisted/controlled accounts, until they or their fund administrators were convinced to invest in MBS assets.

[Note: The foreclosure crisis will likely continue, according to this article: http://bit.ly/cs1Lof]

Then there's the commercial real estate sector, where many developers ran into their own bubbles, whether in retail, hospitality, office space, or some sort of commercial mixed-use concept.  Ultimately, rental rates skyrocketed to a point that small local businesses could no longer afford to expand (or else, they too ended up biting off more than they could chew), regional banks collapsed (or at least some of those remaining after the S&L crisis did), and national retail chains pulled back on their expansion plans before getting into too much trouble -- thus helping to accelerate the decline of speculatively developed small retail projects, which were a favorite of smaller regional development companies.

Now that the market has crashed and it has become a buyer's/renter's market again, debt and capital investment sources are scarce and employment opportunities have systematically declined in Arizona (yes, thanks largely to a non-diversified economy and uneducated workforce).  The often overlooked entrepreneurs who start up little sandwich shops or dry cleaners can no longer borrow against their homes as was the norm, and accomplished professionals of the baby boom generation who might venture out on their own lack the resources and market opportunities to justify the risk.

[Note: This article provides industry-specific numbers for job loss: http://huff.to/9UTP2n]

So we now have an entire population that feels victimized and powerless.  Worse yet, most people paying attention will observe that, without drastic changes to business as usual, the ones most likely to get in on the ground floor of an economic recovery are again the established elite.  This means that some form of social unrest should have been highly anticipated (as called for by Ravi Batra in The New Golden Age).

[Note: McCain doesn't appear genuinely interested in helping his constituents, and he's beginning to attract greater attention from national press for his lack of sincerity: http://bit.ly/aWNnZ6]

While I can't vouch for 100% accuracy of the above analysis, I will say that watching the scenario unfold in historically independent yet transient and growing Arizona is very interesting.  My affluent and educated gen X/Y cohorts see entrepreneurial opportunities all around them, while others view the world through a lens of outrage and seek a place to direct it.  But our best bet is for the two sides to agree on the most pragmatic and proactive idea, which fundamentally boils down to "hey, let's avoid this sort of calamity in the future."

This means investing in a sustainable local economy by supporting local businesses over national chains, thus helping prove the concept and push more money through our local economies.  It means balancing our state/municipal budgets while still investing in long-term growth and education programs to ensure an educated workforce and future economic opportunities. It means economic diversification, better planning, value engineering, etc.

It's a lot of hard work to fix what's broken; Palin's approach seems so much easier.

Seriously? Still Talking Trash about the Phoenix Housing Market? Get Over It Already.

That's right.  I'm about to slam someone for spreading news about doom and gloom for the Phoenix market....  It just seems so 2008.  Meanwhile, in 2010, we have the power of good information and can take pleasure in the art of nuance and differentiation.

Here's the article, which gets it all wrong, in my opinion, with NY-based writers relying on an unnamed real estate professional from the Phoenix market.  Unfortunately, this "professional" does not know how to look up any of the available data sets about his market.  For if he did, he might choose to highlight the Phoenix area's lopsided housing prices, consumer spending, debt levels, employment information, retail trends, and other vital statistics for our vast metro area.

But he does have one thing right, which is that it's not as easy any more bringing in wealthy Canadian retirees and convincing them to speculate on high priced winter homes anywhere in the sunny burbs that an incompetent agent wants to sell them.  Beyond that silver lining, this guy's viewpoint illustrates little more than his own ignorance and self-defeat, since I'm sure that he once was the mortgage broker who could never say no.

He says there is no recovery.  In fact, the recovery/non-recovery in Phoenix is very uneven, favoring more established and unique neighborhoods with jobs/services nearby, while it remains far out of reach for others....  And if this guy thinks that the distant suburbs' fundamentals support a rise in prices to where they were before our housing ponzi scheme fell apart, then he's an absolute idiot (and I think this is the first time I've resorted to name calling -- but I had to, since he's unnamed).  That said, it's interesting to see that builders are in fact returning to some "infill growth areas," as I call them, like in where I live in Laveen; but as a side note to a tangent, the only ones I see building tracts are the national companies, which are probably operating at a short-term loss.

Here's the simple problem: New houses were severely oversupplied in the Phoenix market in the last 5-7 years, as home ownership rates rose within the existing population (meaning that more traditional renters suddenly could buy instead) and amongst newcomers (they practically received houses when they stepped off the plane, like receiving leis in Hawaii).   To make matters more perilous, virtually no one had any skin in the game because of the drunken sailors who sold and underwrote their mortgages.  Meanwhile, the economy remained almost entirely tied to our real estate industry, so that when jobs started evaporating from the market like dew drops in July, many nice new neighborhoods quickly became more like ghettos.  Some people left the state/country in search of better opportunities and others just stayed and floundered.  Still others are doing just fine, as always -- and this is the silent majority, by the way.

Not to mention, the people who "live" in many of those neighborhoods worst affected and on the outskirts don't really live there at all, except to sleep at night, and so the smart ones are leaving.  Think about it: what if you put $10,000 down on a McMansion in Queen Creek, Apache Junction, Maricopa, Suprise, or Buckeye, and then paid between $1,500 and $3,000 per month on it for the last five years, maybe even experiencing a huge spike in your monthly payment in the last year or two.....  Now jump forward to today, when you owe nearly double the market value of that house, you've hardly invested any of your own money into it, and your neighborhood is crumbling all around you.... Top it all off with the fact that market rents are cheap, and I mean really cheap, and you're legally protected against deficiency if you hand your keys to the bank and walk away.  What would you do?  Rent the identical floor plan across the street for half what you're paying?  Move closer to your job, if you still have one?

The answer is or at least should be simple to many people in such an extreme situation, as I've previously written here. This also accounts for our much discussed surplus housing inventory and empty strip malls, shopping centers, and offices.  They are generally located in suburbs outside of the city core -- especially in the boom towns of 2005-2006.  Meanwhile, the historic urban cores of Phoenix and Tempe are showing great signs of renewed vitality that hadn't been seen in 30+ years prior to now, and other areas are adjusting to a new normal or moving forward with long-delayed infrastructure plans and maybe even adding services.

So you tell me.  Do we really stand to gain any more by discussing the downturn at this point?  It seems to me that we should instead be carefully studying the fundamentals of specific markets and preparing for their recovery or re-characterization, whichever is most realistic and appropriate for a given area.  Those that can offer a more compelling reason that people should stick it out and invest in their communities will weather these times well, while the places offering nothing but big cheap houses may now want to reconsider their strategy.  Just as this is true nationally, it is true within our market too -- just on a smaller level.