by Bob Franko
Two years ago, as the economy was beginning to recover, I wrote about “The Start of a Virtuous Cycle.” Last year, I said the future looked bright for 2012. Looking back, both articles were pretty much on point. Things turned around in 2011, and then we looked back on 2012 and marveled at how far we had come, despite the rocky feeling we had along the way.
Now we face a year of worries. First it was the Fiscal Cliff, soon it will be the Debt Ceiling, maybe Europe will become a problem again, before long it will be Inflation, and who knows what other gremlins lurk in our corners.
Investment professionals love to worry. They even have a phrase for it, they call it climbing a Wall of Worry. The Wall of Worry usually portends well for investment returns because investors nibble cautiously. As we saw after 2006-2007, exuberance can be a lot more worrisome.
I expect that in 2013 we will all face the Wall of Worry. Home prices will rise gradually, but not fast enough for most of us. Mortgage rates will stay low, but not as low as 2012. And, believe it or not, the State of California will have a surplus, thanks in large part to 2012. The higher taxes approved last November reached back to the beginning of last year.
More people are finding employment, which means more income taxes for the state, and property taxes naturally increase with increasing property values. Except for the pain that we have to endure by paying those taxes, California’s newly balanced budget makes a great story for the national press. Not too long ago, the only writers talking about the California story were the obituary writers.
There still aren’t nearly enough new homes to meet the demand. Homeowners who are fortunate enough to be in the home of their dreams are starting to remodel and do some of the things they have put off for years. Even more important for the economy, household formations are on the rise. Children who came back home after college are now venturing out. They are getting married and buying their first homes.
2013 will be the year when homeowners take action. This will be the year to refinance at that lower rate and lock it in for 5, 10 or 30 years, all the time worrying if this is really the bottom. (It probably isn’t; I believe that was last year.)
Beach Business Bank will soon be merging with The Private Bank of California and Pacific Trust Bank, bringing three great entities together. The South Bay will experience true private banking services. PacTrust Bank will be originating hundreds of millions of dollars of new mortgages, providing our clients with those low, long-term rates. We have thousands of relationships in the South Bay and Southern California, and this will give us an opportunity to offer a set of products and services that we have never had before.
If you find yourself worried in this coming year, consider that a good sign. Get out your climbing gear and climb that Wall of Worry. Caution is an admirable virtue. We all recall how ebullient we were in 2005 through 2007, just when we should have been most worried. We learned a lesson. The least cautious among us went bankrupt. The rest of us struggled through a severe economic downturn.
Now is the time to rebuild. And just like any building effort, thoughtful caution yields the best results. Be cautious, worry, but don’t fail to act. The future is getting better every day. Two years ago, local businesses got back to business. Last year consumers came cautiously back to the market. This year, established families will rebuild their net worth. New families will get started. By the end of this decade we will have a new Baby Boom that will fill our schools. Consumers will save but also buy things that they only dreamed about a few years ago. Enjoy the times ahead here in the finest community in the world.
Don’t worry too much as you climb that Wall.
Bob Franko is the founding president of Beach Business Bank. ER