11 Problems You Can Solve in 2009: Part IV – Lending

In 2009, there is a renewed opportunity to tap into something that has been paid less and less attention in recent years: Max Weber’s good old Protestant work ethic. Finding appropriate ways to leverage it constitutes the fourth problem you can solve next year for fun and profit.

No. 4: Lending

Problem: Tight lending and poor investment returns
Asset: High levels of personal savings in our region

Credit has dried up. When banks are reticent to loan to each other, what makes you think they’re going to loan to you?

Yet again, there appears to be a viable solution in localizing. While national banks are hurting, local banks in Central PA like Fulton, Union National, and Susquehanna are running strong. Their balance sheets look good (people actually keep money in those banks, as opposed to just borrowing from them), and corporate lending is active.

A profitable way of solving the problem by using the assets at hand may involve local financial institutions. Then again, they may play only a peripheral role.

Make this man proud. Hook up local hard-working folks with interest on their savings by lending to other local hard-working folks.

Here’s the deal: We live in an area where personal savings rates are high. People are earning precious little interest on those savings. The fact that other people need to borrow money isn’t a problem, it’s a huge local opportunity.

As of 2007 (the most recent year that data is available for from the Bureau of Labor Statistics), residents of the Northeast U.S. save, on average, 6.6% more of their income than residents of the rest of the U.S. Here in the Northeast the average household puts 23.5% of its annual income ($15,816) into savings, as opposed to 16.5% in the Midwest, 19.1% in the South, and 15.0% in the West.

It’s worth noting that in the Northeast, an average of $1,730 (9.2%) of household income came from investments (including interest, dividends, and rental/property income).

OK, so narrowing it down to the Northeast is cool and all, but how can I say the strength of this asset (personal savings) is particularly high in Central PA? Here, I have to rely on the same rationale Forbes used when they named Lancaster the tenth best city in which to ride out the recession: the equity people have in their homes.

As of September, according to Zillow real estate market reports,  Lancaster County homeowners who made their purchase in the past five years have a median equity of $40,000 in their homes. That’s 30% of their home’s value.

Compare that with the median equity held in nearby Philadelphia (26%) or Baltimore (23%).  In Boston, which edged us out in the Forbes list, it’s 21%. To see how bad it gets, observe the staggeringly negative 20% in Stockton, CA.

What’s more, in Lancaster, homes have only declined 4.9% in value since their peak (which was in the second quarter of 2007), versus 6.4% in Philadelphia, 10.2% in Baltimore, 16.6% in Boston, and 49.0% in Stockton. Elsewhere in Central PA, State College is rocking—where prices still haven’t peaked—and York-Hanover isn’t doing too poorly—home values there are down 10.7% from their peak.

With that evidence, the opportunity here is obvious: people in our area have savings. The savings are real, too—they’re not about to burst in a housing bubble or a Madoff Ponzi scheme. But the savings aren’t earning much interest. And if those savings could benefit the local economy while earning at least decent returns, that’s even more attractive. We have talented and resourceful individuals and entrepreneurs who could use some loaned capital. Put two and two together, and make a profit off this. Ready? Go.

◊ Share this post on Twitter

Read Part I – Construction
Read Part II – Journalism
Read Part III – Continuing Ed

Population Density in PA: The World May Be Flat, But Our State Ain’t

The state data center released a new map today showing how jam-packed we are. Or, in some cases, how far in the boondocks:

Population Density as of July 2007

Observation #1: The world may be flat, but Pennsylvania isn’t. The areas where population density is low are the areas where there are mountains:


Observation #2: The “buffer zone” of eastern Lancaster County remains impressively resilient. Lancaster is not about to be morphed into another Philly suburb any time soon. Given our rate of farmland preservation, it’s unlikely to happen ever.

Population density in Southeast Pennsylvania

Observation #3: A lot of people live “halfway between.” The notion of a Southcentral PA is not a media-market fiction. Lancaster is clearly connected by dense populations to Reading, Hershey, Harrisburg and York. Thousands of people can easily consider themselves a part of two or more of those urban centers. Columbia borough, for instance, is practically as much York as it is Lancaster. Elizabethtown is as much Harrisburg as it is Hershey as it is Lancaster.

Observation #4: While York County is becoming Marylandized, Lancaster County is not. Look at the pockets of dense population in southern York County–Shrewsbury, Loganville, New Freedom. Credit them to new housing developments built to meet the demand of “Baltimorons.” In Lancaster, there is no density to speak of south of Quarryville. No doubt this will intensify the growing cultural contrasts between the two counties.

I’m viewing these as an amateur, not an expert. I’m sure I’ve missed some interesting stuff. What do you see that I don’t?

Also, I am holding off on considering what these observations, if accurate, really mean. How will our lives and communities be changed by the patterns we can observe here?