Real Estate Growing Pains
Two-year old economic data, no matter how detailed, is usually best used as fodder for historical study or academic retrospectives.
Two years ago, in today’s instant-analysis world, is practically a generation. Especially, in times like our current ones, where we seem to be dancing on a sharp inflection point.
But an interesting set of numbers – albeit 2-year-old data – came out Wednesday from the federal Bureau of Economic Analysis. These are the folks best known for calculating the gross domestic product, the broadest measure of our nation’s economic output.
This latest BEA numerology takes the GDP logic down to the local level. These “prototype estimates,” in BEA’s own words, track local gross domestic product for 363 metropolitan areas. And they’re sliced by 61 industries. Sadly, BEA stuck with the federal government’s dumb “metropolitan statistical area” definitions. Thus, no Orange County-specific data was created. Rather, we’re lumped in with Los Angeles County.
Still, this new BEA math offers up some telling details of the region’s economic progress, circa 2005. You remember back then. The good old gold rush.
The L.A./O.C. economy cranked out $632 billion worth of goods and services in ‘05, or in the ballpark of Turkey’s GDP. We’re No. 2, by national ranking, far behind the ridiculously oversized New York City metro area that by this dumb government definition stretches from the eastern tip of Long Island all the way into Pennsylvania.
Clearly, L.A./O.C.’s 2005 was a growth story: We were $126 billion better than our 2001 – the first year BEA reported on. That’s 25 percent growth, never bad in any four-year period, and better than the 23 percent growth seen by the collective 363 local markets tracked by BEA.
We were, in a sense, on a roll. Of course, there’s a catch: Real estate’s starring role in this roll.
In 2005, construction work and real estate services (renting, brokering, appraising, etc.) were a $133 billion business here. Or about the GDP of the oil-rich United Arab Emirates.
And that’s 21 percent of the local GDP with a strong caveat: No mortgage making or building-supply efforts included in this real estate count! So the land game’s real impact is actually even higher.
Accounting issues aside, the growth in local construction/real estate was impressive from ‘01 through ‘05: a $36 billion increase, or 38 percent. The rest of the L.A./O.C. business world (including mortgaging and building supplying) grew $90 billion, or 22 percent.
But how does this 2005 data translate to 2007? Of course, we’d like to know today’s number today. BEA officials say we’ll likely get 2006 data in a year, and maybe then a quick snapshot of 2007, too. So we’re left deciphering the implications of 2005’s trends.
Obviously, the local real estate market has stalled. So, you can expect the economic impact of construction and real estate services these days to be flat. At best.
That means subtract roughly $9 billion a year of growth – construction and real estate’s boom-time impact – from your economic model. That’s 1.4 percent of 2005’s region-wide L.A./O.C. output. No minor loss.
And we seem more susceptible to a real estate downturn than perhaps others, as 29 percent of our 2001-05 economic growth – as measured by this new GDP math – came from construction and real estate. Compare that boost to the rest of the U.S. major metro areas, where just 19 percent of their success stemmed from the property game.
That’s not a prediction of future gloom or doom. It’s just the perspective that seemingly old data can provide. You know how housing’s been since 2005. So you add it up.
Two-year-old figures simply show us just how vulnerable we are.