When the economy collapsed the real estate sector was hardest hit. As a real estate professional – of sorts – I’m constantly asked when I think the economy will rebound.
I’m not an economist. I do know, however, that the distant early warning signs of economic collapse and rejuvenation are found in more places than the jobless rate, the prime lending rate and the list of housing starts.
As one example, look at furniture. When I was affiliated with a High Point law firm, another lawyer and I would lease our firm’s downtown parking lot each fall and spring furniture market and sublease all the spaces over the weekend. Demand for centrally located parking was high and the supply was limited. Consequently, the price for our spaces went up. We learned after a few markets that we could accurately predict the market’s later-reported success by how early in the morning market attendees arrived at our lot, how long they stayed before leaving for another area, how willing they were to park like sardines, and their readiness to pay our usurious rate rather than move to a distant and lower priced lot.
The real estate economy is no different. There are numerous telltale signs visible on the ground but not at ten thousand feet where economists spend their time.
One of these economic signs is the planning commission calendar. Let’s call it the PC Index, or the PCI so that it has a cache that makes folks sit up and listen.
The PCI right now is low. Very low. And low is bad.
If you glance across the state at the November and December planning commission agendas, very little rezoning activity is taking place. Calendars are full of staff-initiated zoning ordinance text amendments and occasional rezonings and special use permits sought by the government sector (especially schools) and churches. No subdivisions. Practically no shopping centers.
In Randolph County, the November PC calendar contained only two items: special use permit requests for a utility substation and an auto repair ship. In Wilmington, the December 2nd planning commission meeting was shorter. It had only one rezoning and a staff-initiated, uncontested street closure.
The Greensboro Zoning Commission met November 9th. Three years ago the Commission would start its meetings at 2:00 p.m. and occasionally go until 9:00 at night. This agenda had only three items: a rezoning for a school “day treatment” program, a 3.46 acre rezoning for some apartments, and land rezoned for university use. The Winston-Forsyth Planning Board met December 10th and only considered requests from two churches, one text amendment, one rezoning for a small retail store, and a site plan for a .46 acre tract and building.
High Point’s Planning and Zoning Commission met December 15 to hear requests to abandon three platted but unconstructed streets, a 1.3 acre rezoning and annexation related to a failed septic system, and a request to amend a conditional use permit issued four years ago.
These agendas were not cherry picked. I chose them at random.
The point is simple. There are no signs anywhere that projects are leaving the drawing boards and finding their way into the permitting and rezoning chambers of city hall. We may soon begin to see a loosening of credit leading to more sales of existing real estate, but existing sales don’t do for the economy what new development does.
Now that we’ve established that the patient still has no pulse, the question is how we shock its heart back into rhythm.
A few months ago one of my colleagues at the bank soon-to-be-formerly-known-as-Wachovia put it this way. “We ate lots of bad loans and business deals and it’s just going to take some time for them to be digested and passed through our financial intestines. Then we can make more loans.”
OK. I certainly understand that.
Real estate deals occur only when money can flow freely through the system from lender to borrower, typically collateralized by the real estate itself. According to the tea leaves I’m reading, the PCI is just as low now as it was in July.
But when it starts to rise I will let you know.
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