Let The Good Times Average Out Nicely

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LET THE GOOD TIMES AVERAGE OUT NICELY

Friday, March 17, 2006

On average, things are looking good.

Just ask Larry Kudlow, the pundit who thinks the economy is so good that he wondered if the Vice President of the United States agreed with him. So Mr. Kudlow fired this question at the V.P.:

"Isn't the economy kind of an underrated story?"

That's the sort of hard-hitting question that a famous supply-side television personality is paid to ask. Never one to be caught off guard, the V.P. admitted that, in his view, the economy did just fine last year. ". I think any objective observer will say that 2005 was a very good year for the economy, in spite of things like Katrina," the V.P. said.

Last year was a very good year indeed.

Take home prices, the engine behind our New Era economy. In fact, take California home prices, the turbo charger on the newfangled engine. In fact, take the number of homes in California that sold for more than $1 million last year, and this is what you get: You get 48,666 million dollar homes. That's 47% more million dollar homes sold in 2005 than in 2004, according to the Los Angeles Times.

For the record, 48,666 million dollar transactions comes to 1 in 13 California home sales achieving status as a million dollar deal. That's a nice ratio. And that ratio compares to "just" 1 in 20 in 2004. And that compares to 1 in 2, which is the ratio of Californians who want to quit their jobs to become real estate agents once they do the math on the commission involved in a million dollar transaction.

A multitude of million dollar home sales is an amazing thing. The only thing more amazing than the number of million dollar homes in California is what you get for that kind of money. According to DataQuick's numbers quoted in the article, a million dollars in California will get you four bedrooms and 2,480 square feet, assuming you spring for the median million dollar home. Now 2,480 square feet is a fine sized home, but it wasn't that long ago that for a million bucks you could get another couple of thousand feet and a butler.

Not only that, in California a million dollars won't always get you a yard and a garage for your surf board. The LA Times notes that there were 2,902 condo sales in the $1 million or more category last year, up a smart 73% from 2004.

Sure, California real estate is hot, but homes are hot nationwide. Apparently there are one million homes around the country now worth at least $1 million. That compares to only 350,000 as recently as 2000.

But even if a million dollars won't get you the mansion it used to, it's a darn dynamic economy that can conjure up so many million dollar homeowners so quickly.

And it is just that kind of financial dynamism that has created the payday lending industry. Unlike mortgage lenders, who loan out hundreds of thousands of dollars, payday lending involves small advances to the cash-pinched until payday. Because it usually costs the borrower about $15 to borrow $100 for two weeks, the interest rate on these things can top 300%.

Despite a long string of positive GDP numbers, and the record number of million dollar homes, the demand for payday loans is booming. Ace Cash Express, one the industry's biggest players, saw its loan fees and interest jump 19% in fiscal '05. In December the company opened its 1,500th store, up from 1,230 as of June '04.

For the record, cash squeezed Americans can find 25,000 payday lending locations across the country (up 3,000 since 2002). The number of stores continues to sprout like ear hair on a middle-aged man.

But payday loans aren't made to just anyone. You can't just be desperate--you also need a checkbook. That's because the borrower gets the loan in exchange for a post-dated check that includes the fee. Because payday borrowers must have checking accounts, they fall into a higher income bracket than might be expected. Ace Cash Express says that 47% of its borrowers make between $24,000 and $50,000. Another 13% make more than $50,000.

Whatever the income bracket, lots of people are taking out payday loans. According to a University of Massachusetts at Amherst study last year, the payday loan industry dispersed $40 billion in short-term loans in 2004. Although much of it may have been paid back during the year, that's an impress slug of desperation borrowing, particularly compared to the $29 billion increase in revolving credit that year.

With all those desperate borrowers, is the economy really as underrated a story as Kudlow believes? The President thinks so.

In last Saturday's radio address, the President agreed with Kudlow and the V.P., declaring that "Thanks to tax relief, spending restraint and the hard work of America's entrepreneurs and workers, our economy today is strong."

While the use of such words as "spending restraint" in the wake of a budget cycle that gave us the "Alaskan Bridge To Nowhere" is interesting at best, it appears that three very important people all agree the economy is doing just fine.

On average, who wouldn't?