My sister, Dr. Julie Lockwood Pechacek (PHD, Economics) wrote the following response to my May 8th article on real estate and the economy.

Response To May 8th Real Estate Crash Article:

I read your article on the economy and the Portland housing market. Here are some thoughts. Let’s talk more often! Love you,

-Julie

-While I agree that timing is important, you appear to rely heavily on the fact the recession in pdx occurred after the main wave. I say “appear” because I don’t think this idea is required for your argument. Recession timing is more related to the geographic dynamics of contagion, and how a financial contagion spreads, than any specific features of Portland’s (moderately diverse) economy.

-Your essay leads me to wonder if all sectors of the housing market are experiencing this run-up. What are the prices of modest or cheap homes doing? Is this a phenomena effecting mostly wealthy households? The reason I ask is that essentially all wage growth during the jobless recovery has been captured by high earners. Because lending standards have become more rigorous, I find it hard to believe this run up is driven by middle-class workers. I find it more likely that this trend is driven by more expensive homes, and that the market middle class workers are shopping in still has a lot of excess inventory. You kind of state this indirectly.

-You seem to rely on an unspoken assumption that the economy needs a robust middle class to be “healthy”. I agree this is part of what we want our society to be like but I’m not sure it’s a prerequisite for healthy growth. Many economists believe it is necessary, and I am likely among them. But many economies preform quite nicely on paper and display very low degrees of wealth and income equality.

My Rebuttal:

Actually, in Portland Metro, inventory is tight across the spectrum of housing with affordable housing being among the most difficult to find. When one ventures above 300k there’s a bit more options and over 400k there’s even more available. In terms of Portland’s recession hitting later I only meant to communicate that even though the local market might appear robust, there may be fundamental problems brewing under the surface.

Your question as to whether a healthy economy needs to have widespread and fair wealth distribution versus a hierarchy of thousands of plebeians supporting few patricians begs the question leads me to anecdotally quip: why is being healthy inherently desirable over being unhealthy? After all, the devil’s advocate may opine that {being irresponsible} can be fun while cake and bacon taste good. I would answer that widespread physical, emotional, spiritual and financial health are important if one desires a more durable fulfillment. The dictators/kings in many of the world’s most horrible countries still live in luxury.

We want more precisely because we wish others to share in good fortune in addition to adding synergy to those already prosperous. Perhaps I should have stated that lower and middle income homes are the hardest hit (in terms of price hikes and also price drops). Furthermore, being able to sell “starter houses” allows many buyers to trade up to nicer homes. When starter houses tank, higher end homes follow a season later because fewer would-be buyers can afford them without selling their first homes.

Thanks For Reading,

By Richard Lockwood
Real Estate Broker
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Response to 05-08-2014 Housing Article
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