February 4, 2023
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Thornberg: SLO County poised to lead regional recovery


With its wine grapes, relatively affordable housing and recovering labor market, San Luis Obispo County sits at the leading edge of the recovering in the Tri-Counties and statewide.

That was the view from Chris Thornberg, founder of Los Angeles-based Beacon Economics, at the semi-annual Central Coast Economic Forecast held in Atascadero on June 6. Speaking to a crowd of several hundred business and government leaders, he said the Central Coast was well positioned to benefit from a steady economic recovery being driven by increasing real estate values and financial markets that have made sustainable gains.

“I”m happy to say SLO County has moved to the forefront of growth in a state that’s at the forefront of growth in the national economy,” Thornberg said.

Thornberg attributed much his optimism to real estate prices. “Real estate is booming. It’s the real deal, and it’s going to be affect many different levels of the economy,” he said.

The good news is that defaults are down. They totaled about 100 units in San Luis Obispo County in the first quarter, down 75 percent from the year prior. On the surface, construction also looks good ­— with 128 units of multifamily housing in the works, the county’s multifamily construction rate is up  267 percent this year — but, as Thornberg noted, “That’s coming up from almost nothing.”

Indeed, even the increase in real estate values in the Golden State rests on troubling fundamentals. After years of oversupply from a mid-2000s building glut, the housing market is running tight on inventory. Nationally, there’s about five months worth of housing stock on the market, with California’s rate at about half of that at 2.5 months.

“That’s nothing,” Thornberg said. “When supply is that tight, you get bidding wars. That pushes up prices, and things move forward.”

Indeed, the one-two punch of tightened federal lending standards and California’s aversion to new building could put a drag on the housing markets.

“You’ve got a situation where the middle class can’t get mortgages,” Thornberg said. And housing supply “is one of the biggest issues we face — the fact that we have the most unaffordable housing market in the nation.”

The subtext is that getting people out of the rental market and into the homeownership market has a heavy influence on household net worth, which, in Thornberg’s view, has helped drive the recover and is part of the reason he predicts a national GDP growth rate in the 3 percent range for the second half of 2013. “There’s been a wonderful increase in the average household net worth,” he said.

Thornberg is optimistic about growth because much of that increase in average household net worth appears to have come from families de-leveraging and paying down debt even as real estate values rise. That, coupled with financial market recoveries that have made 401(k) accounts look a little less horrific, have given households confidence to spend again. Thornberg also said he believes the gains are sustainable because they have been driven by low interest rates on corporate debt and record-breaking profits as big firms made productivity gains during the recession. Overall, prices are more in line with earnings than they have been at previous peaks, which means the highs aren’t a bubble. “The bounce back to the stock market is the real deal, and I argue it has some headroom,” Thornberg said.

When families feel financially secure, they buy wine and take vacations, which is good for SLO County, Thornberg said. And that applies internationally. “South America has been booming with strong economies and sending people up here,” he said. And most of the 40 percent increase in China’s tourists are coming to California. They’re buying wine and ordering more when the return home.

“Wine exports from this state are exploding,” Thornberg said, noting that he had visited the Central Coast several times in recent months to pick up bottles for his own collection. “Finally, the rest of the world is figuring out that the stuff they make in France is swill.”

Thornberg dismisses California’s chronically low rankings on business climate lists — “I have yet to see any of the surveys that actually correlate to growth rates,” he said – but he did note that manufacturing, an important sector on the Central Coast does face undue hurdles in the state that must be addressed for long term growth. He also warned that while Proposition 30, the tax increase championed by Gov. Jerry Brown and passed by voters, has had a positive impact, state lawmakers could yet squander it. “Sacramento has never met a surplus it doesn’t like to spend,” Thornberg said.

Indeed, Thornberg said the nation has nothing to fear but its inept lawmakers.

“The only remaining big risk out there is the political environment – the ability of the folks we send to Washington to get off their ideological keisters and get some business done,” he said.