I was never great at calculus. I got a B, but I think it was probably a generous B. The one thing I did understand was the concepts of what calculus is about. What it is really about is the rate of change or delta. When I started trading even though I didn’t thoroughly understand all the intricate parts of calculus and higher-level math, I knew enough and was good enough internally at statistics to figure things out on the fly quickly.
Over time, the rate of change changes! Sometimes it is fast and sometimes it is slow. I am sure you are thinking, “thanks for that Captain Obvious”, but when you look at different things it can be enlightening.
Take child rearing. I raised my kids in the 1990s and early 2000s. The way I raised my kids had more in common with the way my parents were raised than raising kids today. Why? The phone and tablet. They totally changed the delta on how kids are raised.
I was looking at housing markets the other day as well. Someone asserted to me that if there are a lot of people in a city, that must mean the demand for housing is high so the price of housing should go up. But, some cities see increases faster than others.
Here are some charts of different cities and housing prices. Places like Vegas, Phoenix, Nashville, Austin, Dallas, and Miami have been hot markets where a lot of people have moved to get away from oppressive governments. Places like SF, NYC, and Chicago have high-tax oppressive governments.
Las Vegas
Austin, TX
Dallas
Miami
San Francisco
New York City
Chicago
Phoenix
Nashville
When you see this graphically, you can spot the differences. Obviously, many local laws and regulations affect the price of housing locally, so it is hard to compare and contrast San Francisco with Dallas.
However, if you think about individual economic opportunity as it pertains to certain cities in the US, looking at housing data is mildly interesting. Of course, there is more than economic opportunity when you choose a place to live. That’s just how I look at it a lot of the time.
If you wanted to make millions of dollars, what cities in America are the best places to do that? I can think of two: San Francisco and New York City. You can in Chicago if you are a computerized trader but that’s pretty specialized and the startup costs are very high. You can go to work for an existing firm and make a lot of coin.
Los Angeles is another place, but you better have a pretty face, be able to sing, and be prepared to wait tables for a while. It is certain some cities are better than others for certain occupations and despite the higher costs of living in that city, it’s beneficial for you because the “delta” on your earnings is better in that town than in any other place. For example if you wanted to be a futures trader in 1980, settling down in Tulsa, OK might have been a cheaper cost of living but the odds of you making it were a lot less than settling in Chicago.
It’s also interesting to see how the housing market in the individual cities reacted to the 2008 housing crisis, and how they recovered. It’s interesting to see what those same markets did during Covid. The slope of the Dallas and Miami lines is significantly steeper than other cities. Chicago is sucking wind and the data compiled by Wirepoints over the last few years further confirms that.
Virtually every market is down in 2023 due to interest rate increases. No surprise there and they look to be down by very similar slopes with Las Vegas and San Francisco showing the sharpest declines.
How will remote work affect the slope of the lines in those graphs?
Looking at the delta sometimes gives you a different perspective on a decision-making process.
California real estate is interesting as real estate taxes aren’t reassessed until the property changes ownership or has new construction. Therefore taxes aren’t eating away at the equity of a $500k home if it becomes valued at $4mm under same ownership - contrary to Illinois where taxes eat away at the equity and force some to sell.
Apart from interest rates and income levels supply and demand also impact prices. For growing cities where demand is increasing, loose zoning codes help maintain supply so prices don’t get out of control - Houston is the only city with no zoning codes and one of the highest number of annual permits - vastly different from Los Angeles. Another example is Tokyo which loosened zoning regs to combat inflation.
On the flip side we have Detroit with low demand and over supply during the financial crisis who then started bulldozing houses with $250mm tarp funding that somehow ran out - now are proposing to skyrocket vacant land owners’ taxes in an effort to spur new inventory.
As 'remote work' escalated nationwide, my Realtor instincts kicked in thinking about "ALL that empty commercial office space". With the economics of uncertainty in full swing, I see A LOT of dark windows for extended periods. The productive remotes will keep their jobs. The unproductive will be phased out. That still leaves many empty cubicles and unused fluorescent lights.