Six Degrees of Separation

You've probably heard the theory that everyone in the world is separated from everyone else by only six degrees.  That is to say, considering all the people you know and have come in contact with, all the people they know and have come in contact with, etc. to the sixth degree, you indirectly know or have come in contact with everyone living in the world today.  If you think about that theory, it can also explain the state of our economy here in Covington and, indeed, the world.

I received a call this week from a friend who's an architect and residential builder.  He is helping Newton County officials put together an application to receive some of the federal "bail-out" funds to help our local housing industry.  He asked if I could get some statistics for him on our local housing market to help support information in the county's application. 

What I realized in putting together those statistics is how closely related the housing market in Covington is to the state of our local economy and the economic woes around the globe.

New home sales in Newton County dropped from 1226 in 2003 to only 329 in 2008.  In 2003, new homes were selling in an average time of 159 days for an average price of 101.1% of the asking price.  In 2008, it took, on average, 198 days to sell a new home, and then at only 93.4% of the asking price.  The housing bubble had burst, and home builders in Covington and Newton County effectively stopped building new homes.  (There are currently only 329 new homes on the market in Newton County, but a 16.2-month supply of resales and foreclosed homes.)

Economists report that the housing market is a leading indicator of the state of our economy. So, what happens when builders can't sell their new homes and stop building?  The six degrees of separation theory takes over.

When builders aren't building, they don't need developers, banks, material suppliers, realtors, carpenters, electricians, plumbers, drywall hangers, landscapers, brick layers, concrete workers, or house cleaners.

Developers, banks, material suppliers, realtors, carpenters, electricians, plumbers, drywall hangers, landscapers, brick layers and concrete workers don't need land, new offices, office supplies, advertising, lumber, nails, tools, wiring, light fixtures, plumbing fixtures, drywall, sod, plants, pipe, brick, concrete, or new trucks.

Banks foreclose on the builders' inventory and tighten credit on everyone because they don't have money to make new loans.  (There were 779 foreclosures in Newton County in 2008.)

Municipalities loose revenue from taxes and utilities, putting law enforcement, firemen and sanitation workers out of work.

There's no need for manufacturers' products so they don't need as many factory workers.  Nor do they need freight carriers' trucks, trains, ships, and airplanes to deliver their goods.

Builders, developers, bankers, wholesalers, realtors, carpenters, electricians, plumbers, drywall hangers, carpenters, electricians, landscapers, brick layers, concrete workers, house cleaners, cops, firemen, sanitation workers, factory workers, and truckers are unemployed.  They don't have the money to shop at the malls, buy new cars or eat out.  Retail workers and restaurant workers become unemployed.  Unemployment rises to 7.5% (in Georgia).

A simplistic explanation?  Probably...

Realistic?  Yea, it's happened...

So, did housing market problems in Covington and Newton County cause all our economic woes?

No!  But when the same thing happens in Covington and Atlanta, and Orlando, and Hillsdale, New Jersey, and Spokane, and Denver, and Walnut Creek, California all at the same time, there's only six degrees of separation between us, a U.S. recession, and a global economic crisis.

"Life isn't about waiting for the storm to pass...  It's about learning to dance in the Rain"