Local and state governments depend on economic growth to pay for government services, and very little growth occurs without someone buying or renting real estate.  Our collective real estate markets, therefore, are bellwethers for the nation’s economic health and our communities’ growth patterns.  Here’s where we’re trending.

             Acknowledging, of course, that today’s weather doesn’t establish a regional climate, there are three trends worth commenting on.

 Retail growth

            First, in the good news column, retailers are making more money because you and I are buying their goods. Home improvement giants Home Depot and Lowe’s recently announced huge fourth quarter gains.  Just today, McDonald’s announced that its February sales went up almost 4%, while Dick’s Sporting Goods announced a fourth quarter 30% net income. 

             When you and I buy a hamburger or a soccer ball we’re adding to McDonald’s and Dick’s ability to buy land to construct yet another store that hires yet more people who will spend their money on more hamburgers and soccer balls.

             And to pay mortgages. That’s the bad news column.

 Housing markets

            Also in today’s papers is an announcement that 23.1% of the nation’s homes were “underwater” in fourth quarter 2010.  “Underwater” means that a home now valued at $100,000 has a mortgage that exceeds its market value, say $110,000.  In that circumstance it’s hard to sell.

            And what’s worse, the number grew from 3rd quarter 2010.  It’s not a good trend, because homeowners start to drown when home prices fall.

How did this happen?

             If you remember the old Bullwinkle cartoons, let’s join Sherman and Mr. Peabody and step into the “way back machine.”

             In the early years of the last decade, banks financed homes for people with highly questionable abilities to pay back the loans.  These loans were called “sub-prime” and they took on a rating much like bonds.  As more and more money went into these sub-prime loans, more and more people could afford bigger and bigger houses and developers could finance more and more subdivisions.  Banks were confident in this scheme because they could sell these mortgages to Wall Street where they were bundled and packaged and labeled “safe” and sold to folks like you and me (and large institutional investors).

             When these mortgage terms were up and they were reset at much higher rates, defaults and foreclosures led to a drop in home values, loss of collateral value, and a plunge in the infamous mortgage-backed securities.  Bankruptcies – individual and corporate – followed.  The global financial system faltered.

            As NY Times’ David Brooks said earlier this week (paraphrased), our entire financial system was built upon the notion that our nation’s bankers wouldn’t do something stupid en masse.

            Fourteen months ago, on January 1, 2010, looking back on the disastrous year 2009, I described it this way:

             “This year we were reminded that a capitalist economy has contractions, but the tidal ebb was different this time because the root causes did not seem to be part of the natural order of things.  There was a feeling that those who controlled our banks and investment houses – folks who should have been on “our” team – betrayed us and became economic terrorists.”

Is there a third trend?

             Yes, and it’s also in today’s news.  Bank of America, which had much to do with the mess we’ve been in, just announced that its problems have stabilized and will get even better over the next two years. My translation: banks will soon have freedom to make more loans, and as money flows more freely through the system expansion can occur.

            So . . . my crystal ball tells me that developers will soon do more developing, builders will soon do more building, engineers will soon do more engineering, planners will soon do more planning, and elected officials will soon do more of whatever it is that they do when zoning proposals are on their agendas.

               Will it be “normal” growth?  Yes, eventually, with “normal” being defined by the more sustainable growth in the years preceding the sub-prime meltdown.

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Tom Terrell

Terrell_TomMr. Terrell is widely regarded as one of North Carolina’s leading land use attorneys, representing both private and governmental entities in matters related to real estate development. His practice “footprint” covers the state from the mountain counties to the coast and occasionally includes…

Terrell_TomMr. Terrell is widely regarded as one of North Carolina’s leading land use attorneys, representing both private and governmental entities in matters related to real estate development. His practice “footprint” covers the state from the mountain counties to the coast and occasionally includes parts of Virginia and South Carolina. His many clients are involved in commercial and residential real estate, solid waste hauling and disposal, telecommunications, quarries/asphalt and miscellaneous litigation related to permit denials, vested rights and rezonings.

He has published numerous articles and speaks regularly to legal, governmental and business groups on a variety of issues related to land use and zoning.

Mr. Terrell has served as a leader in numerous civic and legal endeavors, including Chairman of the Board of Trustees of the N.C. State Health Plan, Chairman of the Board of Trustees of Winston-Salem State University, and service on the Board of Directors of the UNC-CH General Alumni Association, Board of Directors of the High Point Chamber of Commerce, Board of Visitors of Guilford College and Board of Center Associates of the Center for Creative Leadership, and as a founding member of the N.C. Bar Association Zoning, Planning and Land Use Section.

More information can be found at https://www.foxrothschild.com/thomas-e-terrell-jr/.

Mr. Terrell can be contacted at mailto:tterrell@foxrothschild.com.