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A Look at the Aftermath

We read today in a press release that President Obama said “We may be seeing the beginning of the end of the recession.”  Our own analysis of the leading economic indicators has led us to the same conclusion; things are getting less bad, and we may enjoy a mild recovery in the months ahead.  But this does not at ALL suggest that we are going to return to a period of robust growth.  As we’ve said before, “less bad” does not mean “good.”

After a true bubble like the one we witnessed in Florida real estate, it can take years or even decades to work off the excesses.  Earlier today, a friend sent me a story about a high-end, 34-story condo tower in Fort Myers, Florida.  The building has exactly one resident — yes, one!

So, the rest of the building remains vacant, a monument to the most absurd American real estate bubble in history.  Will it ever be leased or owner occupied?  Maybe.  Maybe not.  Dallas, Texas — our hometown — was one of the centers of the late 1980s condo binge associated with the S&L debacle.  The I-30 corridor was littered with condo developments that FAR exceeded local demand.   Many properties remained vacant eyesores for years before finally being demolished — having NEVER been occupied.  The areas most affected are still blighted, 20 years later.   That part of the city is hideously ugly, and probably always will be.

When development finally returned to the DFW metroplex, builders largely ignored the area and chose instead to go a different direction.  Quite frankly, that part of the city may never recover.   Perhaps some of the federal stimulus money could be used to build a monument there — “Speculative Bust National Park.”

At any rate, the recession may or may not be ending.  But we are definitely NOT returning to the way things were, at least not any time soon.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy