Today I attended the Urban Land Institute (ULI Arizona)’s annual Arizona Trends Day conference.  It was 8 hours of economists and real estate professionals sharing their knowledge and perspective on the current state of the Arizona and national economy and real estate market.  Here are some of the highlights from my notes: 

The following figures are from the presentation of Rick Waddell, CEO of Northern Trust:

• $436 Billion of loans were written off by banks from 2008 – Q1 2011.
• In 2009 5% of all bank loans were non-performing, which equaled 50% of total bank capital.
  • My commentary:  This is hard for me to imagine.  Let’s do the math.  If 5% of their loans equals 50% of their capital, then they had $10 in loans for every $1 in capital.  No wonder so many banks failed or needed bailed out.  That is crazy high leverage. 
• The Dodd-Frank Act will have at least 3 seriously negative effects on the economy: 1) It will reduce bank earnings, 2) It will decrease the availability of credit (loans), and 3) it will increase interest rates on loans.
• Rick also shared some interesting figures.  If you and I had the same financial situation as the U.S. Government, here’s what our finances would look like:
  • $207,000 of annual family income
  • $372,000 spending budget
  • $165,000 of our spending must be put on credit cards
  • $1,400,000 is our total credit card debt
  • $3,850 is the amount we are going to reduce our credit card debt from our efforts to reduce our deficit spending.
  • After seeing how the U.S. government’s finances look like, our finances look pretty good!

I apologize I can’t give proper credit to the authors of the following quotes since I did not write in my notes who said them. If you were there and you know any of the authors, please add a comment.

• “Stabilized real estate is an oxymoron in this market.”
• “We are 2/3 to 3/4 through the problem” (meaning the real estate correction)
• The Phoenix Arizona market has outperformed the rest of the nation in the past and it will even more so in the future now that we have such affordable housing.
• We have gone through a trial by fire (with this real estate market crash).  Fire can either consume or refine.
• This “Great Recession” was not just another cyclical recession, but rather a “structural recession”.
• The Rabbit Hole Recession Analogy: 
  • Recessions are like falling into a rabbit hole.  In every other recession since WWII we fell a little bit, hit the bottom, and bounced right back up and out of the rabbit hole – and the world around us looked pretty much the same as it did before we fell.
  • In this Great Recession, however, we have fallen in a much deeper rabbit hole, somewhat like Alice in Wonderland.  This time when we hit the bottom we did not bounce back up and out of the hole.  Instead we’re stuck at the bottom of the rabbit hole and we have to figure out how to get out of it by innovating.
• Dr. Dennis Hoffman, economics professor at Arizona State University, shared some very interesting and enlightening charts that compared the current “Great Recession” with the prior 10 recessions since WWII.  The slides are not posted on the ULI website yet, so I Googled “recession comparison charts” and found a great resource at the Federal Reserve Bank of Minneapolis’s website.  I will make a separate post to share those.

Bottom line, big picture take-aways: 

• The residential market has improved tremendously over the last year.  They said the statistics too fast for me to write them down, but I will make another post citing stats from ROI Property’s ‘Real State of the Phoenix Arizona Residential Real Estate Market.”
• The commercial market has apparently bottomed out and is expected to bounce along the bottom for perhaps 2 or 3 more years before showing much improvement.
• The Phoenix market will rebound very well when the economy improves and jobs return.