Landmark Links September 26th – Living on the Edge


Lead Story…. 2017 has been a truly dreadful year for natural disasters in the United States (and Mexico for that matter), and we still have a few months left to go.  After several quiet hurricane seasons, the southeastern US and gulf coast have been hit with major storms and flooding which have caused loss of life and billions of dollars of property damage.  The impact on the US economy will be substantial.  Patrick Clark of Bloomberg took a bit of a different look at this ongoing issue last week in an article entitled Home Prices Soar in Disaster-Prone Areas (emphasis mine):

Amid the terrifying recent events is a worrisome finding from a new report: The parts of the U.S. most at risk of natural disasters are also the places where property values are highest and increasing most quickly.


The chart comes from Attom Data Solutions’ natural hazard index, which matches geographic areas to government data on risk of flood, earthquake, tornado, wildfire, hurricane, and hail.

The riskiest 20 percent of U.S. counties have the most homes, the highest average home values, and the greatest price appreciation in recent years. Why? Buyers who pay premiums for ocean views and mountain lookouts may be getting some additional disaster risk as part of the bargain, said Daren Blomquist, senior vice president at Attom. Those kinds of geographical attributes are likely secondary factors in driving price appreciation, though. More importantly, Attom’s list of disaster-prone areas overlaps with engines of economic activity.

I had never really thought about our economy this way before but, as the statistics bear out, it really is the case that economies tend to be stronger in disaster prone areas. The big question is why is this the case.  I have a few thoughts:

  1. The Weather is Better – It’s been fairly well documented that population and economic growth tends to be greatest in so-called smile states that make up the sunbelt.  People may be drawn by warm climates initially but economic growth also tends to beget more economic growth and these trends have been in place for quite a while.  It’s an unfortunate reality that warmer places tend to be more prone to tropical storms and hurricanes meaning that the very thing that drew people in the first place is also the cause of risk.  I was reminded of this in Michael Grunwald’s excellent essay in Politico a few weeks ago entitled A Requiem for Florida, the Paradise that Never Should Have Been.  In that piece, Grunwald details the history of the Sunshine State and how it was considered uninhabitable swampland until developers figured out how to drain it, making population growth possible.  However, in doing so, it made large portions of the state extremely unacceptable to storms since the former swamps were low lying and in the path of hurricanes and tropical storms.
  2. The Geography is Better – People generally like to live near the coasts.  The weather is more temperate and natural ports historically allowed for more commerce meaning that this is where large, vibrant cities tended to pop up and grow  A city near the water is more susceptible to flooding and storms than a city located inland.  As above, the very feature that  draws people to live or build there is what makes a region more prone to natural hazards.
  3. The California Effect – I would be remiss if I did not bring up my adopted state here.  California has the best weather and some of the most dynamic cities in the US.  However, almost the entire state is fraught with earthquake risk, not to mention fires during the dry season and hillside slides during the rainy season.  It’s also the largest state in the US by population and has a toxic marriage of some of the most restrictive housing policies and some of the best job growth which has led to a major affordability crisis with home prices around 2.5x the national average.  The Golden State absolutely plays an out-sized role in driving up average housing prices higher in high risk zones.

I tend to suspect that people will be more cautious about topography in Houston and Florida going forward.  In fact, we are already seeing this behavior in Houston as homes that didn’t flood are now selling for a premium.  California, on the other hand hasn’t had a major earthquake in quite a while and I suspect that we are becoming too complacent.

In conclusion, I wouldn’t expect much of anything to change when it comes to home prices in regions with high natural disaster risk.  It all comes down to trade-offs.  After all, would you rather live near a coast in a dynamic city with good job prospects and face the risk of an occasional natural disaster or would you rather live in Cleveland?  I know what my answer is. (Side note: I considered writing an apology for that last part – especially to my handful of friends who grew up in Cleveland.  Then I remembered that they understand this better than I do).


Get Real: Real wage growth has been strong of late because inflation has been low. However, firmer inflation caused real wages to dip in August and they could fall further if that trend continues.

A Tale of Two Cities: Economic prosperity is concentrated in America’s elite zip codes, but economic stability outside of those communities is rapidly deteriorating.

Toxic Mix: Believe it or not, bubbles aren’t necessarily bad things…..unless debt is involved.


Still Going Strong: The predicted CMBS slowdown hasn’t occurred yet.  In fact, there has been a flurry of activity according to CoStar.

Under Pressure: Mall REITs are tanking again as debt continues to haunt ailing retailers in the wake of the Toys R Us bankruptcy.


What’s Next: The Fed is about to embark on a quantitative easing unwind which will likely result in higher mortgage interest rates.

Low Hanging Fruit: The mortgage market is ripe for disruption despite fintech startup missteps.  Can incumbent lenders get innovation before the startups get market share?


More than Just Grades: Being a member of a fraternity in college lowers a student GPA by approximately 0.25 points on the traditional four-point scale, but raises future income by around 36%, according to a paper, “Social Animal House: The Economic and Academic Consequences of Fraternity Membership,” published by two economists from Union College in Schenectady, New York.  See Also: The friends that you make in the first year of college can impact how well you do.

Contingency Plan: Amazon is a lifeline for some retail workers but only if they happen to live in the right city.

Someone is Going to Jail: There was some highly suspicious bearish trading in Equifax options right before the largest data breach in history was announced.  However, whether it’s criminal or not all comes down to who initiated the trade order.

Chart of the Day

US housing prices continue to diverge from wages. Here is the updated comparison since the early 1990s. Is this trend sustainable? Some housing analysts say that it is as long as inventories remain low.

Source: The Daily Shot

Shooting self in foot:

The US protectionist move against Canada’s lumber hasn’t worked out as intended. Lumber prices soared as Canadian firms pass the tariffs (and higher margins) to the buyers. New US homes will become more expensive.



Employees Must Wash Hands: Someone (allegedly) put semen in soap dispensers at Detroit’s airport. It’s a good thing the perp wasn’t caught or he would have missed his flight home to Florida.

Today in Brilliant Marketing: Charmin has offered free toilet paper to the Colorado Springs ‘mad pooper’ if she turns herself in.

Truth in Advertising: A coffee called ‘death wish’ has been recalled because it actually might kill you as a result of contamination from botulism.

You Don’t Say: An NYC restaurant that served raw cookie dough in bowls (mainly to hipsters) has been hit with a class action lawsuit for making people sick.  Apparently it’s not a great idea to consume a lot of raw eggs.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at