Wednesday, July 29, 2009

Outer Banks Economy-Foreclosure-Part 3

Just when you think you've covered all the bases, someone smarter and even more tuned into numbers reminds you of something else that, once digested, results in a quick trip to the bar and the desire to simply drink the gin or vodka straight.

I won't ID the Realtor who alerted me, at least not now, as I don't have his permission. But his observation...

If we only have a 5% foreclosure rate on rental homes in Dare and Currituck Counties, that will be about 750 homes with an average of 12 weeks booked...that's 9000 weeks that could be affected. This will have a disastrous affect on our bread and butter tourism economy.

Ouch! And one of the issues rising to the surface is how foreclosing lenders are handling rental properties. Or, perhaps better stated--how they are not.
Ronnie Roach warned about some of these downsides over a year ago in his blog, especially on this post.

Essentially, these banks are not leaving the homes in rental programs. The deposits and other monies are being taken from the rental companies and the former owners, typically because the bank had the borrower sign an Assignment of Leases and Rents. Next, they sell the furniture in many cases, leaving an empty rental home for the next buyer. Finally, they take the house out of the rental pool and list it for sale. Any booked weeks are vaporized...gone.

As our Realtor above states, if (and we emphasize, if) we have that many rental foreclosures, the local economy will be hard pressed to absorb the loss of 9,000 rental weeks. And, once word spreads about canceled rentals due to foreclosure, people may become reluctant to make reservations with a 50% deposit up front.

Its hard to imagine why these lenders are not keeping the homes intact and leaving them in rental programs; some income is better than none. I imagine that the concept of weekly rentals is alien to most of them, its likely they aren't really aware of how the system works. Likewise, they probably do not have the staff to manage all the contracts and pay the bills. But, their repo's will sell faster and for more $$ if they leave the homes furnished and maintain their rental history. Plus, the cash can be applied to reducing the principal balance.

My suggestion is that OBAR and others reach out to the national third party companies that typically handle foreclosures for large lenders and enlighten them, perhaps even offer to help them manage, book, and pay the associated bills. That way, everyone wins.


Sunday, July 26, 2009

Outer Banks Economy-Foreclosures-Part 2

I promised a series on the Outer Banks economy based upon data and my interpretations; my interest in such kindled by a whopping six additional hours of Econ classes at the graduate school level at ECU, which apparently stimulated my long-sleeping brain. My first attempt revealed how dangerous a little knowledge can be, since I drew conclusions from data that was incomplete. This blog will reconnect my early foreclosure data with some newer numbers in an attempt to show where we are today. I have other data that will show where we have been, and perhaps how we arrived at our present position. Maybe from there we can figure out what comes next.

My builder buddy, Duke Geraghty of Starco Realty and Construction asked that I not spin the data but show true info about the Outer Banks. What we will see here is not pretty.

The first chart shows the number of "bank owned" property on the market as of last week, sorted by list price (not tax value). Remember that this data is merely a snapshot of one day and one day only. It does not track all foreclosures since the downturn became acute in late 2007, nor does it include every current foreclosure. If a bank has not listed the property, is not selling it through MLS, or if the listing agent has not identified the property as "bank owned", it won't show in this data.


When I provided the data on bank sold property last week, I noted the price range was skewed towards the bottom of the scale, indicating more locals and middle class borrowers were affected by the economy. Of course, my data didn't show the bank owned property listed, which might reveal more distribution on the higher end that simply had failed to sell. And this indeed happened. However, the data still skews raw numbers of houses toward the lower end of the scale. Right now, there are 152 bank owned properties for sale (residential only, no lots and no commercial). 91 of those, or 60% are priced at $500,000 or below. Of course, sale price doesn't tell the whole story; a vacation condo could be listed at $300,000, and a vacation home formerly listed at $600,000 could now be discounted to $400,000.

Thus, I went through each of the 152 listings one at a time, noting the location, subdivision, and type. While not 100% accurate, I think I have a very reliable breakdown on vacation rental property vs. primary residences. The following chart is not price-dependent; for example a $1 million home in Martin's Point is counted as a primary residence (or second home) rather than a rental.

Here we see the investment community, in terms of raw number of houses (and also in total dollar value, which is not tracked) make up the majority of bank-owned property, 83/152 or 55%. However, 69 of our listings appear to be primary residences, 45% of the total sample. Given the total number of vacation rental units in our market area far exceeds the number of primary residences/second homes, a belief that the local population was hit far worse than the investor community appears to remain valid. Much research into the foreclosure data gong back to 2007, and tracking of future data will be required to make certain. For example, local workers might have lost their homes first, and rental homes might not succumb until ARM's, interest only, and other types of loans reset. But for now, I am willing to state the local population suffered far worse than the investor since the onset of the housing crisis.

Location of bank owned property is also revealing.



As a single entity, Kill Devil Hills-Colington has a plurality of the bank owned property, with 3o of the 152, or 20%. Virtually all of these are west side permanent residence homes.

Let's look at the numbers that are almost assuredly vacation investment homes. There are 27 in Corolla/Corova; 24 in Rodanthe-Salvo-Waves, and 10 in Avon and Hatteras. That's 40% of the total represented in just four local areas. Both Corolla and Rodanthe-Salvo-Waves experienced some of the biggest increases in housing starts, and both communities were places where homes west of the main highway (in this case, Hwy 12) saw prices which rivaled those in the oceanside communities. This was particularly true in Wind Over Waves, Kinakeet, Currituck Club and the 4WD area of Currituck County. If you compare the "sold prices" of these foreclosures with their tax assessed values, many are going for 70% or less of their valuations. For the future, this information should warn us that if the rental income does not support the sales price, non-oceanfront home prices should be suspect. Market prices in a rising bubble do not reflect true economic value, something even I as a lender lost sight of on certain deals.There is, apparently, some unmeasurable utility to owning oceanfront property, even if it doesn't cash flow enough to cover the debt as these homes have not, to date, been repossessed at the same rate as non-oceanfront.

Secondly, in my personal opinion, both Corolla and Rodanthe-Salvo-Waves lack a sense of a resort community and are not well-developed commercially. While it may be true that visitors prefer the lack of commercialization these two destinations offer compared to the middle beach area (KDH-Nags Head-Kitty Hawk), they no longer represent the "wild" places of years past. One of my friends described Corolla as "soulless", another as "sterile". For whatever reasons, potential buyers seem to agree and owners did not realize the cash flow they were expecting. In Rodanthe-Salvo-Waves, grocery stores are far removed, restaurants are few, and shopping is minimal. When you are paying $6,000 a week to stay in a place like Hatteras Island Estates, one might expect more "amenities" to be available nearby. It appears many of these homes, both oceanside and oceanfront were purchased to flip, rather than being held as long-term investments.

In the future, prices in both areas should be held to the old 10% rule; gross rental income should meet or exceed 10% of the house price, at least for non-oceanfront. And, with appraisals, I'd suggest a different method of supplying "comps" to project rental income. Three or four "comps" may not be representative of a community, and the data supplied to the appraiser by the rental company may be "hand-picked". Given the success of the two grocery store chains in the area, I suspect the price/return on investment of the newer homes is part of the problem rather than the raw number of visitors staying in Corolla. Rodanthe may be a different story, but I believe price/rent ratios will be a prominent factor.

Below I am reprising the chart from the previous post which showed Bank Owned Property Sold, rating by Assessed Value.

As mentioned before, the data is skewed to the low end of the scale. While this data mainly depicts the price points foreclosed properties are selling for, combine the low end raw numbers here ($400K and under) with the homes currently listed for sale that are primary residences, and one can begin to measure the impact on locals. The second chart in this post estimates the number of primary residences at 69 out of 152. On our sold chart, we estimated 54 of 73 were likely primary residences. From the two samples, 54% of Bank owned properties sold or currently listed appear to be primary residences or at least, second homes. Once again, given the distribution of vacation homes versus primary residences, data points to the faclocals are suffering at a disproportional rate during this crisis.

Overall, about 2700 homes are listed on the MLS in the Outer Banks market. Given that 152 are identified as bank owned, roughly 5.6% of current inventory consists of foreclosed properties. The number of monthly listings has been fairly static in the range from 2700-2900 since the year 2007, and the number of under contract homes has also been static during the same time frame---around 150 each month. Thus, there is no reason to believe the present snapshot presented here is much different than the recent past.

While most bankers would be disturbed that foreclosures compose 5% of the current listings, the numbers do not indicate at the present time the area is suffering to the extent other resort areas are relative to investment home foreclosures and price decreases. This is likely due to three factors; 1) the OBX has strong rental revenues compared to Florida and Nevada, which is supporting the underlying mortgages, 2) lenders are willing to extend interest only payment schedules until the local economy recovers, and 3) many loans made under absurd programs such as below market ARM interest rates and negative amortization loans have not reset as of this time. Some of those resets may not occur until the 2010-2012 time frame; at which time neither the rental income nor the values will likely support the loans.

What we can conclude from today, apart from the impact on the local population is the following. As far as sales are concerned, especially with bank owned properties, the "sweet spot" for price points is below $400,000. Secondly, two investment markets in particular were hard hit by the recession--Corolla and the "Tri" villages of Rodanthe, Salvo, and Waves. The public and private sectors would do well to study these two areas and determine why their foreclosures are so much higher than they are in Duck, Kitty Hawk, KDH and Nags Head relative to vacation homes. Was there an oversupply? Are the areas too "residential", lacking in other activities people associate with resort areas. Were projected rentals too high? Have traffic issues finally caused a backlash for Corolla travel? Do the problems on Hatteras Island have any connection to the ORV-beach closing issue? Finally, was the price inflation on housing in both the areas too far out of line? I tend to agree with the latter, but some studies need to be conducted.

Remember, this data is not complete and many other variables could explain the results. And, please keep in mind I estimated the number of primary residences vs. rental homes based upon educated guesses of the observed data. However, at least we now have some picture of the current situation.

The next post will cover in more depth what is occurring locally. No spin, and what I will show is not encouraging. Finally, at heart I am a liberal arts guys, I hate math (I know, strange for a banker), and statistics even more. As a result, I am sure those more well-versed in these matters can construct better models, point out fallacies in my conclusions, or suggest data inputs I failed to consider. Please do so if you can; many locals are anxious to know how we got here and what we can expect from the future. Any contribution to that cause will be helpful to many.

Thursday, July 23, 2009

Great Moments in Presidential Speeches

Somehow, Dave Letterman missed this....

Russ & Ray Exchange--ONE More Time!

When Ray and I get going, the discussion can go on and on. So, in order not to bore everyone with the collective thoughts of Lay and Midgett, I promise this will be the last comment I move to a post. But, it covers some issues that often come up in local politics, so let's give it a whirl...

Here is what Ray said. By the way, if you want to follow Ray's group on the Internet, which is the Outer Banks Beachhuggers, there can be found here.

Russ, relative to the lobbyist, you said..."... First and foremost, the position was created so that one person could track ALL of the differing rules and regs, both existing and proposed, that were coming out of six municipalities, two counties, and the State of North Carolina..."
Perhaps that was the main intent of hiring the lobbyist. However, early on the lobbyist got heavily involved, up to his neck, in political issues distantly related to the above. To wit: beach nourishment consumed him. And, today, with a new lobbyist, much of her spotlight has been focused on homeowners insurance matters, etc. Add to all that, local organization monies put into the pockets of questionable political candidates and you can end up with mud on your shoes. Finally, my opinion is the lobbyist idea was one of the worst things these organizations have ever done to their public image on the Outer Banks.

Here is another place where I respectfully disagree with Ray. For the sake of this response, I won't address the merits of beach nourishment from either side of the discussion. But, if the two groups that hired the Government Liaison person believe that beach nourishment is important to the economic well-being of their members, then it is fair game and it is not "far removed" from the more mundane concerns of builders and Realtors, such as lot coverage or storm water runoff. Votes were taken at membership meetings and amongst the two respective Boards, and it was decided by a majority if the beaches were allowed to erode, the overall economy would suffer. If that occurred, less homes would be built or sold.

Again, I am not addressing the issue of whether beach nourishment makes sense, but rather, was it an issue that the OBHBA and OBAR believed was important to their future well-being. In their case, the answer was yes, even if individual members of both organizations disagreed. So, while not as directly related to building as, say, timely inspections from town authorities, it is not even a small stretch for both organizations to take a position and lobby for that position's success.

Likewise, the current battle over homeowners insurance is equally relevant. If both organizations feel that the proposed rate increases will greatly increase the cost of home ownership, then they should certainly be concerned with the issue and take a stand on the proposed rates. Relative to Dare County, housing costs are already well above the State and national averages, so virtually any increase in insurance costs might disqualify or discourage the purchase of an existing or new house.

In fact, the Sentinel and other critics were bemoaning a penny increase in the sales tax, or a .05 cent increase in the Nags Head property tax rate to fund beach nourishment, claiming it would be a hardship to the residents. The proposed changes in wind, flood, and hazard insurance, on top of the rate increases already witnessed over the past five years (my own wind policy went from $800 to over $2000 in the span of five years) are certainly more of a burden and fair game for the OBHBA and OBAR.

Now let's debate something else. AL East--Red Sox, Yankees, or do the Rays repeat??

More On Foreclosures

I'm lazy today, so my friend Duke, a builder, responded to one of my posts with the following. I decided it was too good to be buried as a comment:

Just a little follow up with my view of the foreclosures. I don't think it was greed. It was a guy who works for a plumbing contractor, or works for a drywall company or the sub who trims houses. Some were small business owners (subs) and many were employees. They were making $20 per hour, working 50-60 hours a week. Their wives were working in banks, for law firms, Real Estate or retail making about 12-15 per hour. Now that wife has lost her job and the framer or plumber is working 20 hours a week. For the first year they could get an equity loan or used credit cards. Now that has run its course they realize the home is not worth what they owe on it and are still only working 20 hours a week, if that, and have no choice but to walk away. I feel for these people because they weren't greedy, only gullable. They were looking for their chance at the American Dream, have never been through a recession before and figured the slow down would be a year or so, not 3 years. Never the less, they are gone. When we lose enough of our labor force we will find out the real cost of repairing an air conditioner or having new tires put on your car. I am trying to figure out who the average citizen is in Dare County. Is it a retired investor, a fisherman, a Real Estate Agent, construction worker. All of those houses kept people working, whether it was lawyers and their staff, banks, mortgage brokers, decorators, landscapers and the usual 40 crews it takes to build a house. The sales tax money paid to buy building materials, the transfer tax paid on the land sale and again at the closing and the payroll taxes paid every week are sorely missed by both State and Local Government. What I am hoping is that the foreclosures that have become affordable, will become the first home for the young couples who have remained and want to stay and raise their families here. If we become strictly a retirement community, we will never have the money for the services retirees require since they will try and stop all growth and do not want anyone else to have a chance to grab the gold ring. Just an opinion. I may get into the illegal immigration on another comment.

Wednesday, July 22, 2009

OBX Economy-An Exchange

In response to yesterday's post, Ray Midgett sent along his thoughts as a comment. Even fewer people read the comments than read the blog, so I thought I'd move these thoughts to a post and have an exchange. One thing to note; Ray responded to my original draft, which left out an important caveat--that the graph depicted showed only what foreclosed properties were selling, not the actual inventory (and assessed value) of bank owned property. Regardless, his points are interesting. His comments will be in bold, mine in normal font. None of his comments were edited.

Russ, I wish you had included one more aspect in your analogy. How old were the mortgages that went into foreclosure?

Correct, Ray. That would be very useful information. It could actually be mined, but is beyond the effort I have time to make right now. But, with only 70 sold so far in 2009, I might be able to perform that task. However, more foreclosures than that actually exisit, so I suspect the total amount might be well north of 300 or so units right now.


The long and short of your analogy is that, during the heyday, too many people got mortgages who, (1) couldn't afford them, or (2) didn't know how to manage their finances. And, or course, out-of-state astute investors generally do not fall into this category as much as locals.

Perhaps. First, you responded to my original post, which was misleading, data wise. My bad. I really don't have a handle on how many out-of-town investors have lost their homes since I listed only sold foreclosures. Could be a ton out there that are so expensive they might be sitting on the shelf. I will get that data and report back.

As to the locals, given the skewed nature of those bank-owned properties that have sold towards the very low end of the OBX housing price scale (51 under $300K), my guess is that most of these were not borrowers who couldn't afford the houses or couldn't manage their money. The typical rents at this end of the spectrum were $800 to $1200 a month, not much different than a corresponding mortgage payment. And these houses didn't lose value as significantly as those on the higher end, which makes it less likely the borrower walked away easily. My guess is, if we could interview the former owners, most lost their jobs and then their houses.


Finally, as to charges of greed aimed at the building/realtor/etc industries, unfortunately much of it was/is deserved. These industries are too well-organized here on the Outer Banks (to wit: hiring governmental lobbyist), first and foremost to look after their financial interests, which means making more money. They were certainly not formed to be fraternal organizations.

Here I would disagree. I'm not sure how any organization could be classified as "too well organized". The position you refer to is more than a government lobbyist. First and foremost, the position was created so that one person could track ALL of the differing rules and regs, both existing and proposed, that were coming out of six municipalities, two counties, and the State of North Carolina. The actual members work all day and don't have time to keep up with these regs. Kevin, and then Willo dedicate a lot of their time simply researching, reporting, and if requested by the members, going back to the governments involved and seeking change or modification. In many cases, the governments seek the input of both OBAR and OBHBA before enacting new rules or regs.

And, it is perfectly ethical and legitimate for any business of any kind to watch out for its own financial interests. You are correct, they are not fraternal organizations, they are organizations that represent profit-seeking members. Profit is not a bad word. Sometimes the interests of business and the public at large diverge, and that is not a bad thing. The resulting discussion usually brings about compromise. Greed is an overused word, maximizing profits is what business is all about. The builders answered demand--with few exceptions, virtually all of the 4000+ new homes built found willing buyers. That's not greed. And, for the guys doing the physcial labor, the boom provided real jobs and living wages for skilled workers.


Lastly, when is local government (to wit: Nags Head and Tourist Bureau (tax funded)) going to realized that more, more, more, more doesn't equate to a bettery quality of life for the AVERAGE CITIZENS OF DARE? Why do we need a huge or semi-huge convention center? More large meeting rooms. How many times have we heard that. ANSWER: to bring more people and $$$ here; and to put a larger burden on us to support it. These things are never free. Sometimes the half-full glass theory does makes sense. More growth on the Outer Banks today is a lose-lose situation, in my opinion. And, of course we want to see 100% employment, that's a no-brainer. But, who wants to see 125% employment needs? Let's hope immigrant labor stays away for a long,long while. In the end, we will all be richer and happier.
Ray Midgett

OK--here we have some room for agreement. I do not think we need more people here in the summer, too many now and not enough infrastructure. I'd like to find a way to keep close to 100% of the existing rental inventory booked in the summer, but I'm not keen on adding many more units or bodies to the mix in June, July and August.

I agree on the idea of a convention center. There doesn't seem to be any evidence it will attract visitors in the shoulder seasons, and we certainly can't accomodate conventions in the summer. Getting here is difficult, no commercial airports and tedious rides (for business people) from all compass points via car. The current proposed site is not near any hotels, nor is a hotel planned as part of the project. But that's a topic for another post.

When I suggested tourism in the off season, I wasn't thinking huge crowds. I was thinking of more events like the OBX Marathon, a bigger Wings Over Water, the continuatiton of our surf fishing tourneys, perhaps a big food event, and Bike Week. Most of these are 3-day events and they don't attract 200,000 people a day. But they do spread out some tourist dollars all year 'round

I'm of mixed opinion on the illegal immigrant population.

Tuesday, July 21, 2009

OBX Economy--The Myth's?

Sometime near the middle of 2007, the Outer Banks Sentinel wrote an editorial regarding the looming economic crisis and observed "local bankers are now worrying about where their next interest payment is coming from". At least more than one local banker disagreed with this remark, and in 2008, when the foreclosure tide began to rise, the Sentinel took note of the fact and even mentioned those bankers who had disagreed with the earlier assessment.

Since the housing boom lifted off slowly around 2000, there has been much debate about the over-development of the region, both in regards to the large rental homes east of the major arteries, and the commercial projects that followed. Anger and criticism has been directed at Realtors, builders, and developers. I know, because during the entire time I was either a Board member or a committee member within the Outer Banks Homebuilder's Association. I still reside there today, as a member of the Legislative Affairs Committee.

The foreclosure spree got underway in earnest locally during 2008. However, most of the properties taken were either commercial buildings where tenants vaporized, or speculative homes financed by local banks and building supply companies; in essence, commercial loans. About 300 homes were foreclosed upon in 2008 locally, and the typical price range was between $300,000 and $400,000.

During most of 2008, national mortgage lenders were failing or struggling, the Federal government trotted out stop-gap measures to save mortgages, and banks retrenched. In all of the confusion and flow of rescue funds, foreclosures on residential properties were stalled. In 2009, the dust had settled, the rescue programs were mostly in place, and lenders began to foreclose on the "lost causes".So, who is getting hurt? The above chart shows the distribution of assessed values of bank owned (foreclosed) property that has sold in 2009. It does not indicate the assessed values of foreclosed properties listed but not sold, so it is not inclusive in telling us exactly where the foreclosures are occurring. I am working on gathering that data for another post. The information was gathered from a report generated by David Watson at Southern Shores Realty.(His is raw data, the charts and interpretations are my own). On the left side are the raw numbers of foreclosed homes (the y-axis), and across the bottom (the x-axis) are the assessed values of the foreclosed properties. I chose assessed values rather than sale price because they are more indicative of whether a house is a year round residence or a vacation rental home.

What the data does tell us is the current economic environment is definitely hitting the middle class hard. Of the 73 foreclosed properties that have been re-sold, 54 were priced at under $550,000 and were"west-side" properties. In fact, as the chart demonstrates, more than 50 of these homes were assessed at less than $400,000. The average assessed value for all bank sold properties was $411,000, and that includes the eight homes assessed at $800,000 to $2,000,000+. To narrow the data set further, 32 of these homes were in the Kill Devil Hills-Colington Harbour market area, where the vast majority (26 of the 32) were assessed at under $300,000.

Thus, contrary to what many predicted, it isn't just the rich, out-of-town rental machine owners who are taking it on the chin. Virtually every foreclosed home sold under $400,000 represents a local resident who lost their dwelling.

It will take some time before we know what the economic effects of foreclosures will be on the investment home owners. For starters, not many are selling at any price. And, when they do, they are often going for 60% or less of assessed value, especially in Corolla. I suspect one would see a similar trend on Hatteras Island, which is excluded from this data set. An early indication of sale price seems to demonstrate that west-side properties in Corolla were significantly over-priced and that their rental history will not carry the original sales prices. Lacking rapid appreciation so that a home can be flipped, buyers now are seeking cash flows that at worst are neutral (based upon rental history).

There has been a fair amount of anger directed against local interest groups, such as the Homebuilder's and the Board of Realtors. Included in this category were developers of both residential and commercial projects that followed the increase in home building. What we have witnessed locally is that our economy is tremendously dependent upon real estate related profession. In terms of the income of the local workforce, I would feel comfortable stating that real estate-related salaries far exceed those incomes generated by tourism alone (sales clerks, waitresses, hotel staff. etc).

Those who believe the wealthy, McMansion homeowners will get their comeuppance in the current crisis should think twice. I promise I will supply the data on how many of those homes have been taken back by lenders, but we should not forget that these homes were investments, often obtained with little or no money down. While a foreclosure may ruin the credit of these borrowers for a few years, they will not likely lose their primary residence, cars, or even their jobs. On the other hand, all those sold foreclosures under $300,000 represent a solidly middle-class family, and one can assume with some certainty that the foreclosure had something to do with lost wages from the downturn in construction and real estate.

If I were the local newspapers, I'd focus just as hard on the local population losing their homes and a lot less on the "bankers" who "over-developed" the Outer Banks. And, if you think you are immune from these type of job losses, remember its the blue collar and middle-class workforce that keeps all those year 'round services going; local stores, medical facilities, the schools, restaurants, and other businesses. Their spending power makes the difference in many cases between an October closing and a 12-month schedule.

Secondly, each time a foreclosed home is sold, a new assessed value is created. So far, about $30 million in foreclosed homes have been sold in 2009. If those homes sold for 80% of assessment, $6 million in taxable assets have disappeared. Add to that the depressed sales prices of non-foreclosed homes and the end result is--someone (you and me) is going to either pay higher taxes or suffer from government cutbacks in services.

We can't afford the "us and them" mentality that pervades the beach; the residents versus the income-producing property owners. We are all in this together, and it takes both sides to run this local economy.

Finally, our political leaders need to seriously consider diversifying our employment base. Tourism will always be King, but there is room for other economic activity to supplement our economy. Expansion of the arts community, a four-year college, culinary schools, and attracting high-tech workers not dependent on physical location (programmers, risk analysts) are some areas of focus. More medical facilities to support a retirement community is also a good idea. And, we aren't done with tourism. We don't need to pack more folks in here during the summer, but the Tourism Board needs to focus on things like birding, kayaking, and food events to draw weekend and short-term visitors in the fall season, along with the usual fishing enthusiasts. Hiring another out-of-town formulaic Tourism Director will not likely result in the changes we need to smooth out our economy.

More to come.

Sunday, July 19, 2009

More Thoughts on the OBX Economy

Sometimes a little knowledge can be a dangerous thing. Or, it can spark a renewed interest in intellectual pursuit, especially the study of why things happen and how. In my undergraduate days, I concentrated my electives almost as tightly as my major; my B.A. was in Political Science, but the bulk of my other electives were in History and Economics. I chose my M.A. program for the same reason; International Studies required at least some graduate hours in Econ and History in addition to Political Science courses.

The result was that by the end of grad school, I had 18 hours in Economics, and I've now added six more, with six to go. In addition, working in banking for 30 years has added some practical experience.

The six hours of Econ I took over the summer involved a survey of eight books, some very current. The books broke down into four categories; the problem of foreign aid, the tax code, Fed policy and the current economic crisis, and the theory of risk management. Two of those areas directly impact the field of banking and real estate; one more (the tax code) can affect real estate in both positive and negative fashion.

In terms of risk, and more importantly, Fed policy, I think I have learned enough already to draw some conclusions about what happened here (it wasn't the same as in the rest of the country), and attach that to my bank experience. In addition, several sets of data that are available locally, but more importantly, data collected by David Watson of Southern Shores Realty dovetails perfectly with the pattern of events I think I see in the local economy. With David's permission I plan to begin incorporating his data with my own thoughts and the research of expert economists to draw a more complete picture of what happened and why it occurred. Sorry, I won't be predicting when it all ends.

Another hope is that I can cobble enough of a hypothesis together to write a bigger-than-a-term-paper but smaller-than-a-thesis to convince my Econ professor at ECU to count three more hours as independent study. This will come out in bits and pieces here, and I will still cover restaurants, local politics, and humor (although studying Econ 24/7 certainly doesn't inspire one's funny bone).

But, let me add one thing early on. Too often, we in the private sector dismiss academics and their research as having little or nothing to do in the real world of business. After reading just three books on Fed policy and risk, it struck me that we in the business world would do better if we actually continued our intellectual studies in related fields rather than wasting time on all those business-related fad courses (what personality type are we as managers, how do we effectively cross-sell and uncover selling opportunities among customers, etc, etc).

What I have learned over the summer is that even though lending is a form of risk-management, we as lenders, and our backstops, the credit managers, really don't understand risk on a large scale. We depend too much on micro-risk (analyzing the last three years tax returns, evaluating collateral based on appraised value, meeting minimum ratios of debt coverage), and completely ignore macro-risk; what is going on in the larger universe locally, regionally, nationally, and yes, even globally. Even more striking, I suspect the majority of bank CEO's, be they large or small institutions, pay little attention to economic theory other than what they see each day--the yield curve, Fed rates, long term Treasury rates and the like.

Another thing we ignore is data available locally. In some cases, no one gathers it. In cases where it is gathered, few banks track the results and string all the various data points together in something that might have prevented some of mess we find ourselves in today.

Its easy to pay lenders based on production, and its easy to judge the value of a credit manager based on the loss percentage in his or her portfolio. But while most credit managers are good at tearing apart a loan request, or approving an obvious "yes", few are well-trained in analyzing their markets, nor do most have the time to perform that function even if the subject interested them.

I hope some of what we publish here on these issues will be interesting. We'll see. And, we'll see if my little bit of new knowledge is a dangerous or useful thing.

Thursday, July 16, 2009

Continuing Education

I've received some emails and personal comments with the same general questions--where is the humor and where is your blog?

As I mentioned before, one of my goals is to teach at the community college level, at least part time. I have an M.A. in International Studies, which allows me to teach Political Science in NC and VA at the community college level. Once you obtain a Master's in any area, another 18 hours at the graduate level entitles you to teach that subject also. My M.A. program was interdisciplinary, so I had six hours in Economics already. Over the summer, I decided to add six more. This involved two classes on topical economic issues; the first four weeks on taxation and foreign aid, and the second four weeks on risk management.

Eight books, ten weeks. Each week, one 10-13 page response to 20-30 questions posed by the professor. And two small papers, 4-6 pages.

As a result, its been a weird summer. I've also taken enough classes to obtain a mortgage brokers license in two states, and I have begun to collaborate with a local group in that endeavor. I have yet to even touch the beach, much less spend a day there. I still need to read an entire American Government textbook, create a syllabus, write teaching notes, and come up with tests and assignments for the class I am teaching in the fall.

All of this has been fun, a blast in fact. Way better than anything I ever did as a banker. But, it has left little time for the blog, and even less time for humor. I plan to get my funny bone back soon, but in the interim, enjoy the summer, and I'll blog when I can. I appreciate everyone who reads, subscribes and writes me about this blog. I promise it will return to form soon.

Sunday, July 12, 2009

Oops...Def Leppard in Good Shape Afterall



After watching one of the guitarists, Phil Collen prance around all night with his 6 pack abs....a situation that led my wife to apoplexy, I must reconsider yesterday's preview of Dep Leppard.

Actually, DL did a great job, performing almost all of their hits and few songs from the deeper cuts. The showmanship and guitar playing were excellent, and the vocals showed little sign of deterioration over the years.



Poison came across as an entirely different band for the days of old; the instrumentation and vocals were still there, as was a rambunctious floor show. However, the bad has mellowed considerably; constantly thanking the audience for 22 years of support and dedicating several songs to the military audience that "protects our freedoms". Poison has toured for the troops in Kuwait, Iraq and Afghanistan.

Cheap Trick was the first act; but was allotted little more than 40 minutes. Rick Neilson still looked chubby in his Elroy hat and suit, and Robin Zander belted out all of the hits. The band has a new album out, and is planning some kind of Beatles retrospective for the future.

Saturday, July 11, 2009

Def Leppard-The "Pour Some Viagra Down Me" Tour?

Of course, when you live on a sandbar masquerading as an island, you must travel north to the gleaming city of Oz, a/k/a Norfolk-Virginia Beach and like the "vowels" y and w, sometimes Chesapeake and Portsmouth. This is a necessity to experience things like "culture", and to obtain stuff that is hard-to-find locally, like Egyptian cotton dress shirts with a narrow spread collar, and even more importantly, something as rare and mysterious on the Outer Banks as a properly fitting suit made of materials that won't melt if they come close to the romantic candle on your table-for-two.

Such is the reason I find myself trekking to the Virginia Beach Amphitheater to take in the musical talents of the legendary bands Def Leppard, Poison, and Cheap Trick. This is of course, at the pleasure of my wife, who in particular loves Def Leppard. Me--think Beatles, Stones, Dylan, Eagles, REM, U2, Indigo Girls, Baez, Lucinda Williams, Eagles, Nirvana, SCOTS, Marley, and southern rock.

Doing some research on Def Leppard reveals the band members range in age from 47 to 52 years old. One guy, a guitarist, is named Vivian. Their song titles can be very clever. Remember "Armageddon It"? It's s'posed to come across as "Are You Getting It?". Sort of like how "In the Garden of Eden" morphed into In-A- Gadda -Da -Vida". And yes, I get it, double entendre and all.

One of their biggest hits is "Pour Some Sugar on Me". It is of course, a subtle call for some sexual play. "Lay Lady Lay" it ain't. Given the age of the band and their notorious life style (one band member died after mixing alcohol with pain killers prescribed for 3 broken ribs. Not NFL or rugby material was he!), I suspect a lyrical change to "Pour Some Viagra Down Me" would be more in order.

Here is lead singer Joe Elliot last year at age 48...


Of course, while at a party last night in Elizabeth City, I got some re-assurance from a younger guy I'd estimate to be in his 30's. He assured me that there would be plenty of hot chicks there with "boobs out to here" (you'll have to imagine the breadth and depth of the hand gesture, but I would compare it to the size of the typical fish that got away).

So, maybe all is not lost. Then again, boobs as "long" as a yardstick are kinda scary....

Thursday, July 9, 2009

NC Aquarium's Jeannette's Pier Taking Shape


"Buster" Nunemaker III, the P.R. guy for the North Carolina Aquarium in Manteo spoke at First Flight Rotary this past week. His topic was the Aquarium in general, but he specifically addressed the progress and organization of the all-new Jenette's Pier. As you can see from the above, construction has officially broached the ocean and is now moving eastward!!

The pier will be rebuilt with pilings 55 ft into the ocean floor and 30 additional feet above average sea level. The pier itself will be concrete and thus, mostly impervious to hurricanes, but will feature the old-style wood plank flooring underfoot. A two-story building will house exhibits, a meeting room for 300, bait and tackle shops and much more. Across the street, a treatment plant will recycle gray water for reuse in the operations of the pier. Three wind turbines and solar power will generate electricity for the facility. They will recycle rainwater from cisterns to irrigate the grounds, and will store salt water in silos which can be trucked for use in the saltwater aquariums at Manteo. Currently they must make their own saltwater, which is more expensive. At 1000 ft long, Jennette's will be the second longest pier in North Carolina, bested only by the Army Corps of Engineers pier in Duck.

Local and state jobs will be created from the construction, and the workers will be spending much of their paychecks here. All in all, a great thing for our town and the Outer Banks.


Friday, July 3, 2009

Intellectual Reading



Lately, due to my possible (if enough students sign up) teaching of a Political Science class at College of the Albemarle in Elizabeth City, and my Economics courses at the grad school level at ECU (in order to to be able to also teach Econ at the community college level), my reading list has become somewhat dry.

Piled up by the bed like cordwood are back issues of fun magazines such as Baseball Digest, Wine Spectator, Cigar Aficionado, Wired, Fast Company, and Baseball America. Taking their place are ECU required Econ books with exciting monikers such as Taxing Ourselves, The White Man's Burden, A Failure of Capitalism, Getting Off Track, and Freakonomics. To catch up on the Poly Sigh stuff, I'm also reading journals such as Political Science Quarterly, Wilson Quarterly, Foreign Affairs, Hoover Digest, and The American Interest.



So imagine my joy when I discovered, at the bookstore next to the Beach Bread Company (I have no idea what the name of the store is) a copy of a magazine called Modern Drunkard. Mind you, I had heard of this rag before from a good friend who is a religious listener to the John Boy and Billy Show, heard locally on 95.3 The Rock. JB&B is the quintessential Southern boy syndicated show, with plenty of NASCAR news, southern rock music, an emphasis on grits and sausage, and very politically incorrect humor. For years my friend kept quoting over-the-air quips from the JB&B Show attributed to some magazine named "Modern Drunkard". I figured the magazine, like many of JB&B's on-air characters and skits was a fiction, nothing more than a show prop.

Yet there it sat, on a shelf of this bookstore. And the articles? Exactly what one might expect. "How To Be a Wingman", a male role I never had to play in my bachelor days, but one that I now understand is a noble tradition that sometimes requires the ultimate sacrifice. And, this month a full-length article on "All-Star Alcoholics", covering the hardest drinking professional athletes in history. Next up, "Boozing Through Bad Times", which explains how to stretch your recession dollar to continue drinking. One piece of advice: "Cut down on non-essentials. Like vermouth. And olives. And glassware".

And, its probably the only media outlet in the world where an advertisement for a bar is honest and admits why we all frequent them. For example, this ad tag line: "Bar rules: We will not tolerate unacceptable behavior. Like drinking in moderation. The Squire Lounge". The guys are obviously not afraid of MADD and their ilk.

By the way, the bar is in Denver if you're curious.

Subscriptions are $24 for six issues a year. You might think this an extravagance in our depressed economy. But its cheaper than therapy!