Charleston Regional Development Alliance

Berkeley, Charleston & Dorchester Counties

Printed from www.crda.org

Bright side of bursting bubbles

Nov. 10, 2007
Charleston Post and Courier
By Katy Stech
Looking past the real estate industry's current breakdown, Newsweek magazine senior editor Daniel Gross sees a bright side.

When economic bubbles burst, he argues, it allows an industry to take a deep breath and regroup before surging back. They also leave behind talent and infrastructure that can later pave the way for future economic growth.

"When the bubble bursts — and we're in that stage right now — it's the hardest to see what good can come of it," said Gross, who spoke at a Charleston Regional Development Alliance event for business leaders and local officials Friday.

Gross, who recently wrote "Pop! Why Bubbles Are Great for the Economy," calmed real estate worries at the event as he explained how economic downturns lead to innovation.

Take Google, for example.

The company quietly formed in 1998, just before the height of the dot-com craze. It weathered the fallout and later was able to take advantage of the online infrastructure that remained, Gross said.

Google then became the portal to the infrastructure that was left behind by a deflated dot-com revolution. And today, the company's stock trades at more than $600 per share.

Gross gave other examples of businesses that were "built on the wreckage of bubbles."

Early railroad companies failed because of too few passengers, but commercial companies later chose that mode of transportation over shipping goods via canals.

Some good news that comes from the current real estate downturn is that many homeowners now realize the full financial value of their home, Gross said. Many became familiar with the concept of refinancing, and home equity loans have emerged as a better alternative to credit cards spending, which typically comes with a higher interest rate.

The housing boom also boosted the popularity of alternative brokerage groups, which challenge the usual 6 percent commission rate and can save homeowners money, he added.

The slump will likely take several years to wear off, partly because of the drawn-out home sale process. But Gross — and many in the local real estate industry — think that Charleston's low point will be milder than in other places.

Stricter building regulations and a small amount of available land limits how many homes people can build, and that keeps the value up, he explained. The fallout also could be cushioned by regional growth, high-paying industries and existing wealth.

The credit markets, however, won't be as forgiving because of their fluid nature. Banks and lenders across the country have tightened their standards, making it harder for commercial and residential developers to obtain financing even for projects in economically stable areas, Gross said.

"Finance isn't local anymore," he said.

Which industries could "pop" next?

Gross says he's carefully watching the luxury-goods markets and alternative-energy ventures. 		related information