k0an.com

Ten years ago Brentwood was little more than a farming community with less than 15,000 people. Now it has close to 50,000 people and most of the farms are replaced by stucco houses. When thousands of people bought homes that quickly doubled in value the amount of new equity in the area is quite possibly close to a billion dollars.

Ok, I made that number up but I'm guessing that it isn't too far from there.

• There has been a population increase of about 30,000 and there are practically no condos or apartments so all that population is living in new houses.
  
• Say that there are about 3 people per house and that means 10,000 houses.
  
• Right now the average home price in Brentwood is about $600,000 (at least)
• Say the average person only saw an increase in value of 50% (as opposed to 100%)
  

So, if the estimated average orginal home price was $400,000 that means a 50% increase is $200,000 multiplied by 10,000 houses is two billion dollars. I'm not working with any concrete numbers but I'm pretty sure about the population increase, there really are only houses in Brentwood (no apartments), and I know first-hand about values and increases in equity.

This explains why every store I've ever heard of is being built in my town. They are literally building two or even three competing stores across the street from each other. Lowe's and Home Depot are 40 feet from each other. Sports Authority, Sports Chalet, and another one I can't remember are withing a few blocks of each other. After they started building all the stores Samantha and I tried to think of something we would like that hasn't been built yet. The only thing we could think of is Trader Joe's and now that is being built here.

Since it takes a few years to get permits to build such large shopping centers I'm guessing all these retailers have databases out there that help them predict where explosions of growth will occur. With two billion dollars of disposable cash up for grabs they can't build them fast enough.

The latest bit of shopping insanity is about a year away. It's an outdoor mall that will have dozens of high-end stores plus a multi-screen movie theater (even though we already have a mutli-screen theater less than five minutes away which is never full). The mega center is called "The Streets of Brentwood" and it will be built within about six blocks of my home. Stores estimate to appear include: Abercrombie & Fitch, Banana Republic, Coldwater Creek, Chico’s, Victoria’s Secret, Express, REI, Meier & Frank, Gap/Kids/Baby, Limited Too and P.F. Chang’s."



So, if you look at the big picture it gets pretty scary:

• There are millions of new home owners in the US because of previous historically low interest rates
• There is most likely trillions of dollars in new equity across the US
• With low interest rates and tons of available equity to spend people across the US have been spending their equity like there is no tomorrow and not bothering to save any money
• Now that interest rates are rising on almost a monthly basis there is a huge burden of debt that will cause all the free spending to end
  

So, the retailers are taking advantage of the fleeting situation but I wonder what will happen to the economy once this house of cards comes crashing down. I think the only people who will still remain profitable after that point are the home and credit card lending companies (if you make any money off of this free stock tip please share it with me).