Published September 2003

Economic recovery a question of ‘when’ not ‘if’

In the first round of the fight, the challenger, Osama bin Laden, swung a right down low that floored the champ and sent him to the mat before he was really aware of what hit him. Everyone knew the champ was vulnerable in the early rounds, but this one caught him by surprise and did some damage.

Most fighters wouldn’t be able to get up from the cheap blow. But this guy didn’t get to be champ by accident. He’d fought tougher opponents before.

Wobbling, the champ got to his feet and collected himself. A bit woozy, he lumbered back toward the challenger after a standing eight-count. He got in one good right cross of his own that wide-eyed the challenger before the bell rang to end the first round.

In the champ’s corner was his famous trainer, Alan Greenspan. The crowd had no idea how important the diminutive trainer would be to the outcome of this fight. The champ sat in his corner laboring to catch his breath while his team attended to him, but the possibility of the fight being called off because of the low blow was just not something the champ could consider.

Greenspan patched him up with his “low interest rate” program that had proven effective throughout bumps and bruises sustained in training in the months before, and the champ stepped up to start the second round feeling some pain, but definitely not out of this fight.

The American economy, as this fight metaphor suggests, is being held together by low interest rates since the “low blow” of 9/11. Alan Greenspan has allowed us to refinance once or twice in the past several years and apply, in most cases, “new money” to shore things up while we wait out this downturn. We have a sense that the real estate sector is healthy. And certain sectors are. But it’s a product of low interest rates and probably not much else.

Locally, our economy probably felt an even harder blow than the broader economy because of the direct negative impact the Sept. 11, 2001, attacks had on Boeing’s customers.

Low interest rates have helped hold us together but have had a double-whammy effect on apartment property investors, as they have to deal with both the softer economy and the loss of their customers to first-time home buying at the same time. Their property values are holding up, it seems, but operating performances are not.

The wound that Greenspan is tending to is still there, and a broader fight is under way, of course. After we’ve all bought our first home, refinanced our current home, pulled out equity and pulled out equity again, there needs to be some recovery in the overall economy to defend and hold the title as “The Strongest Economy in the World.”

We can’t keep refinancing or using equity appreciation in our homes to sustain a healthy economy. That’s a balance-sheet solution to an operating problem that can’t be sustained forever.

Most economists see us at the bottom of this current cycle and probably coming out near the end of next year. That’s another three or four tough fights to defend our belt before we start looking like the champ of old.

We’re going to get bloodied up between now and then in some real estate sectors. Were we to experience another low blow like 9/11 along the way, we might have to fight five or six more bouts before we’re back to dominating the boxing world again.

But make no mistake, the betting man has his money on the champ still. Bloodied and bruised, he’s still the champ and has fought tougher fights before. It’s just a matter of “when” not “if” he’ll get back to his old form.

Tom Hoban is CEO of Everett-based Coast Real Estate Services, a property management and real estate advisory company specializing in multi-family and commercial investment properties. He can be contacted by phone at 425-339-3638 or send e-mail to tomhoban@coastmgt.com.

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