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March 16, 1990
The bond market is reacting quietly to data showing weakness in housing and manufacturing, but inflation is persistent at 5% per year.
Wholesale prices were unchanged, but the core rate gained .4% in February. Housing Permits slid 25% and Housing Starts fell 7%, while Industrial Production gained a marginal .6%, and Capacity Utilization crawled back up .4% to 82.3%. The .9% drop in February Retail Sales masked considerable strength, and there was a healthy upward revision in the January report.
In 1990, real estate clients will face bold headline obituaries announcing the end of profitable home ownership. The mighty trumpets of the airwaves (and newsprint piccolos) are institutions rooted in the Northeast, where local discomfort has become alleged national news.
When Texans got carried away with a real estate boom and suffered the downside, the view from New York was traditional contempt for country bumpkins. A comeuppance for the uncouth, they felt; an appropriate end for silly S&Ls; nothing more than a latter day Billy Sol Estes swindle.
Our real estate boom is justified, the Yankees said in '86, '87, and '88. We are smart. We have all the really good universities, and our Massachusetts Miracle is authentic (deserved) creation of wealth. After all, New York is the financial center of the universe wealth is supposed to flow to us and our homes.
As the New England boom unravels, the rest of the nation hears the excuses. A current favorite: real estate is a bad investment because Baby Boomers are through buying houses. Translation: I got caught a little overconfident, but it wasn't my fault. It's the Yuppies' fault.
Texastrained bank examiners are arriving in Boston. A national newspaper announced a real estate credit crunch no more loans.
Any New England credit crunch is going to benefit Colorado. Very soon, now, it will be clear that Colorado's problems are in the past, and our borrowers and properties are better banking risks than most.
Meantime, don't let clients be taken in by the "housing is a bad investment" crowd. Look around at friends, and ask yourself what was the greatest source of family net worth? Even in New England, vastly more wealth was created in the boom than will be lost in the correction. The Consumer Price Index on Tuesday and Durable Goods on Friday will be your rate guides next week.
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