Baby Boomers Looking at Retirement – Business Succession Plans Crucial

By Cristian R. Arrieta, Esq.
Edited by Gary Wartik
January 15, 2015

Our monthly newsletter continues to offer articles of interest provided by professional colleagues that offer sound advice to our clients and associates. This month we are offered some timely and compelling direction by Cristian Arrieta of the Lawthorp, Richards law firm in Oxnard, CA, a firm that offers a substantial business law practice. He specializes in trusts and estates planning.

As Mr. Arrieta notes, it has been commented that working for oneself is great because you get to work half-days. You even get to choose which half – the first 12 hours or the second. Funny as that may seem, Baby Boomer generation business owners smile knowingly, and the thought of retirement is alluring. Logistically, however, said Boomers might find themselves in a pickle when it comes to business succession, unless they focus now on some forward-thinking.

Born between 1946 and 1964, the US Boomer generation of small business owners has been, and continues to be, a major driver of our economy (by some estimates 66 percent of all businesses with employees are Boomer owned). Sometimes referred to as the “Me Generation,” Boomers sunk their teeth deep in the American Dream, and they have become the wealthiest generation on the planet. They are also the most numerous – approximating 80 million, and they are currently celebrating their 65th birthday at the rate of about 10,000 a day!

On the heels of the Boomer generation is Generation X, numbering about 50 million, currently aged forty-something, by and large, and entering their professional peek years. Proportionately, there’s about half as many Gen Xers as there are Boomers with any comparable business acumen. With that in mind, if every Boomer-aged business owner today sought to hand the torch off to a Gen Xer, there would be a major demographic bottleneck.

As a trusts and estates attorney, without betraying any confidences, I can disclose that very few of my small business-owning clients have devoted much thought to their business succession plan prior meeting with me (only about 30% of people have done any estate planning at all). Business succession needs to be carefully crafted, preferably at least five years in advance of retirement, and there are a number of moving parts. Moreover, considering the demographics, it should be clear that failing to plan now will likely dampen future opportunity (and therefore value) translating to a less-than-optimal crossroads for retirement age business owners: sell my business for a song or continue to work 12 hours a day.

Take, for example, the business owner who has built a firm over thirty-five years of dedicated, hard work. Now that the business is profitable and rewarding for the owner, he finds that he or she wants to live a little. So he hires a young go-getter who is aggressive and ambitious, with good people skills, and a knack for generating new accounts. In time, the owner is able to play some golf and travel with their spouse, while the identified key employee is content managing the firm.

With retirement in sight, the owner crafts a business succession plan. He provides bonuses for key employees, say 10 shares of common stock, keeping 90 shares for himself. In conjunction with this, he offers his key employee the opportunity to buy his shares at the rate of 10 shares each year. In the fifth year, the owner will take a secured promissory note for the balance of the purchase, payable to him over five years and bearing an annual interest rate of 10%.

Such an arrangement would nicely supplement the owner’s income in retirement and defer income taxes. A structured buy-out will tend to maximize the long term value of the firm, which could otherwise dissipate in the absence of a plan. However, it will work only if it is implemented from a position of strength, early on, instead of waiting until the options become few.

Building a successful business takes guts and years of hard work. Business succession requires careful planning and foresight as well. Boomer generation business owners ought to consider the demographic challenges ahead, and implement a plan now, so they can secure their accustomed standard of living in retirement.

Vision Economics continues to work with small and medium-sized businesses that have need for outside professional services, including those dealing with succession planning issues. Mr. Arrieta is available to provide legal advice and appropriate legal documentation of succession plans as needed. Mr. Arrieta may be contacted through Vision Economics at 805-987-7322, or by calling him directly at 805-981-8555.

Decline in Business Bankruptcy Filings Offer Good News

By Gary Wartik
January 27, 2015

In a continuing trend, bankruptcy filings for both individuals and for businesses declined during 2014 for the fourth year in a row, according to data available through the office of the United States Trustee in Los Angeles. The report noted that total filings decreased by more than one-half percent when compared with those filed during 2010, the high point of filings during the Great Recession.

Filings of Chapter 7 petitions, those that wipe out the debt of an individual or a business, decreased almost 24 percent when compared with 2010 filings, although in Ventura County, just over 2,000 Chapter 7 petitions were still filed during 2014. As well, only one-half of corporate reorganizations under Chapter 11 of the Bankruptcy Code were filed during 2014 when compared with a high point in 2007, although a total of 19 Chapter 11 filings still occurred in Ventura County. The decrease in Ventura County bankruptcy filings was mirrored in most other jurisdictions around the nation.

The formal bankruptcy process has a time-honored place in American law and American history, dating to the time of the Constitution. So too does the out-of-court settlement or “arrangement” with creditors that avoids the lingering bankruptcy stigma for many individuals and some business people. Even in good economic times, businesses and individuals have issues related to managing their debt.

Vision Economics is one of the firms that work nationally to offer “informal” arrangements by which we, the client and the client’s creditors work to resolve debt issues. With the greater availability of credit in the marketplace following the Recession, settlement of debt has become easier for businesses and individuals without the use of the formal bankruptcy process.

Chapter 11 Bankruptcy proceedings are a costly and time consuming process. It is not unusual for even smaller companies to spend two years and between $100,000 and $200,000 in professional fees and expenses to go through the Chapter 11 process, even if the process ultimately proves unsuccessful. In many cases there is a viable alternative, working with creditors through the “Informal Arrangement,” “Out of Court Arrangement, or “Out of Court Settlement,” as mentioned above.

Non-bankruptcy matters may be resolved much more quickly than the average Chapter 11 process, and at greatly reduced costs. With no court hearings to prepare for and attend, management is left with more time to focus on rehabilitating their business. As well, the savings in professional fees and costs leaves more funds available with which to help the business recover from its operational losses and to resolve its debt.

There are, of course cogent reasons for using the formal bankruptcy process, especially when the goodwill of creditors has been exhausted and collection lawsuits against the business are piling up, where foreclosure on property is imminent, bank accounts are about to be seized, or tax liens are about to be filed. In those cases, Vision Economics may be of assistance in resolving issues and making an introduction to a highly qualified Attorney specializing in bankruptcy matters. For further information, we may be reached at 805-987-7322, or email us at

Watch Those Lease Costs – Some Advice for Office, Commercial and Industrial Tenants

By Gary Wartik
December 31, 2014

Lease terms can be challenging to understand, especially for someone new to business or one operating a small business who is involved in negotiating a new lease. When questioned about lease terms, Brokers often say that the questioned terms “are just standard language” or “boilerplate.” While that may be the case, this does not mean that tenants should accept lease terms without understanding all of the obligations thereunder.

Most leases of course provide for a base rent. In addition, so-called Common Area Chargers (CAMs) are added as lease costs and add significantly to monthly lease costs. CAMs include costs for water, property taxes, landscape and parking lot maintenance, and even building repairs. One of the recommendations made by tenant representatives such as Mazirow Commercial, Inc. in Westlake Village, is to ensure that leases include provisions for auditing CAM charges. This should ensure that a tenant limits its liability for CAMs to those actually due at month’s end or at year’s end. Audit provisions are not normally included in standard leases, so tenants need to ask that audit provisions be included. In most cases, landlords will agree to audit of CAM charges since it also serves to protect their interests as well.

Audit provisions should include language that deals with any over-charges in the form of either reimbursement of the overcharges or credits against future lease payments. In the event that CAM charges have been under-charged, of course audits would disclose that too and would leave the tenant liable to the landlord for the difference in costs. It is noted, however that CAM overcharges are more common than undercharges. Audits cost money, so who conducts the audits and who pays for the audit needs to be included in the lease terms.

For additional information or assistance in lease negotiations, please call Vision Economics at 805-987-7322, or Sheryl Mazirow at Mazirow Commercial, Inc. at 805-449-1945.

The Economy is Looking Better as State Jobless Rate Continues Decline

By Gary Wartik
December 31, 2014

Economists have differing interpretations about changes in the economy. Some paint an optimistic picture of the post-recession economy and what to anticipate in 2015. Others are more pessimistic about the figures related to GDP/GNP, unemployment figures, the retail economy and housing starts. The economy likely is somewhere in-between the two schools of thought.

Looking at the economy from an optimistic point of view, we close out 2014 with a recovering economy. The stock market has hit new highs based upon, in part upon improved corporate sales and earnings. Employment levels have continued to increase. Employment remains a key economic indicator. As the 2008 recession gained a head of steam, unemployment rates at the state and national levels increased by more than 50 percent. During the last three years we have witnessed a significant recovery in the job market as employers enjoyed increased sales and recognized the need to fill open positions and create new ones. The California unemployment level in June 2008 stood at 7 percent and grew to 12.4 percent by February 2010, one of the highest in the nation at the time.

Data from the California EDD reflects that the state added 90,100 jobs during November 2014, accounting for 28.1 percent of all jobs added nationally. Over a year’s time, California payrolls have increased by 2.2 percent, comparing favorably with the U.S. rate at 2.0 percent. With continued net increases in employment, California’s jobless rate has decreased to 7.2 percent.

Leaders in California’s November employment figures included the hospitality and leisure sectors which led job increases with some 15,600 new positions. Retailers added 14,500 new jobs. Construction also added a healthy 12,900 jobs during the period. Unfortunately, during the same period, manufacturing actually shed 10,500 jobs, and the movie and sound recording studios lost 3,000 jobs despite a newly enhanced state tax credit program designed to keeping movie and TV production from leaving California to film elsewhere.

The challenge in reading unemployment figures is that it does not reflect the pay level of new jobs, nor does it measure the level of under-employment. Many of the new jobs cited are in food service, hospitality and retail, reflecting improvement in those industries, but most are offered in the range of $10.00-12.00 hourly. These jobs are important to the economy, but pay poverty wages for anyone who is the source of their own financial support. “Under-Employment,” those who are not working a full forty-hour work week, and at a pay level well under their previous employment, also reflects another gap in employment data. These two caveats are not reflected in local or national government employment data.

On the bright side of employment equation, there are tens of thousands of jobs in California and around the nation that are available at any given time. Many pay reasonable salaries and above. A visit to the growing number of on-line job sites such as Job2Careers, Career Source Network, JobQuicken,com,, and others makes it obvious there is employment for those with applicable work experience and for those holding at least a bachelor’s degree. The listings reflect that education and experience still count.

Next month we will examine the entire employment landscape from the position of looking back at the year of 2014. Then, looking ahead at 2015 we will offer a few thoughts about the economy that continues to recover, and why.

For further thoughts on business and the economy, please contact us at Vision Economics at 805-987-7322 or by email at

Do Single Member LLCs Provide Asset Protection?

By Ted Schneider, Esq.
Edited by Gary Wartik
December 31, 2014

During the formation of a new business, the legal form of the business is important since it impacts how to protect personal assets from the creditors of the business in the event the business meets with financial challenges. Some businesses operate as sole proprietors, others incorporate under California law. Nearly twenty years ago the Limited Liability Company came into being in California.

As explained by Ted Schneider of the Oxnard law firm of Schneiders & Associates, a limited liability company is a very popular business form that combines some of the best features of a corporation and a partnership. Like a partnership, an LLC is taxed through its individual members (aka “shareholders”). Like a corporation, it provides limited liability to its members. In most situations, the personal assets of LLC members cannot be reached for the debts or liabilities of the business. Similar to a corporation, there are certain scenarios where personal assets can be reached by creditors. Most LLCs have more than one member. In recent years, a variation called the single member LLC has become widely used. As the name suggests, these LLCs have only one member. While the structure and organizational requirements of single member LLCs are essentially the same as ordinary LLCs, there has been some uncertainty as to whether these businesses afford their members the same type of limited liability.

Initially, not all states recognized single member LLCs. Now, all fifty states and Washington, D.C. recognize these business forms and have statutes governing them. Generally, single member LLCs provide personal asset protection to their members for the liabilities of the business. But, they do not always provide the reverse protection that a corporation or ordinary LLC includes. In the case of an ordinary LLC, the personal creditors of the member cannot go after that member’s share without what is referred to as a “charging order”.

A charging order is a legal device that allows the creditor to place a lien on the member’s LLC interest. The member’s interest is essentially any distributions made to them by the LLC.  Therefore, creditors can collect the members interest but not outright and not without jumping through a number of hoops.  In the case of a single member LLC, the charging order protection may not be provided.  While some states like Wyoming have specific laws making the charging order protection applicable to these types of businesses, other states, like California and New York, have made no decisions distinguishing ordinary LLCs from single member LLCs.  Therefore, in these states it is important to remember that legislation and judicial decisions have the potential to cause serious problems for business owners in the future.

When considering business formation, there are many factors that need to be considered and the advice of a seasoned business consultant or business law attorney can help.  For additional information, please contact Vision Economics at 805-987-7322, or Schneiders & Associates, L.L.P. at 805-764-6370 for a consultation.

Marketers Make a Difference – Where is Your Plan?

By Randy Strong
Introduction by Gary Wartik
December 14, 2014

Randy Strong and Neal Cutler of Associate Marketers are new to the Vision Economics Group team. We welcome the firm, based in Newbury Park, CA because they bring to us more than a generation of experience in the marketing and advertising field. This new association is offered in the effort to provide our friends and clients with the most current approaches to keeping current on your market and how best to reach that market. In this edition, Randy Strong offers an introduction to the subject.

In today’s business climate change happens at the speed of light and in no area is this truer than in marketing. A few things marketers have come to understand in the past year: that traditional media can boost results from Internet marketing, the power of targeted and well produced videos, and that content is still king no matter the media or strategy.

Marketers started the year 2014 scrambling to employ social media as part of their campaigns, only to learn that traditional media still provides a higher return on investment. A recent study of 10 brands by Nielsen Catalina Solutions found brands averaged a sales lift of more than $6 for every $1 spent on radio ads – an ROI double that of even the best results from many recent studies of digital or TV media.

At the beginning of 2014 there was still a strong focus on SEO – search engine optimization. It became the watchword and a necessary part of the overall digital strategy. Now, just twelve months later, that strategy is on life support. Today, there is a general consensus that more important than relevant words, continually infusing new content into your digital platform leads to greater recognition and better results.

As we enter 2015, now is a good time to review your overall marketing efforts, looking at the effectiveness of the message and media choices you made in the past year. No matter your marketing strategy or preferences, be sure to “test and measure.” Make changes to any part of your program that is under performing.

Like the year that just passed, we expect to see marketing rapidly evolve during 2015, so make the commitment now to evaluate your marketing efforts and freshen them as needed! For further information, Randy Strong may be contacted through Vision Economics at 805-987-7322, and by email at, or directly at 805-499-6312, and by email at

Is Angel Investment Readily Available? It’s an Effective Way to Fund a New Business

By Gary Wartik
July 31, 2014

One of the greatest challenges in opening a new business is finding the initial operating capital. In the preceding article we considered the loan process of borrowing from family and friends. There is, of course the self-funding approach which reflects the largest source of start-up capital.

Here we take a macro look at attracting what are known as “Angel Investors.” An angel is one or more in a group who look to invest in new companies with great potential and a unique approach to business, or a unique product or service. The most common areas in which angel investing occurs is in technology, biotechnology and in product companies.

Any proposal made to angel investors starts with a strong business plan. Beyond that, angels are looking for large growth potential that leads a company to going public. Angels make their money not by sharing a company’s profits, but by being in on the leading edge of a company that generates value through it shares of stock. Angel investors are looking for businesses which they themselves have an interest, not financial but emotional and one in which they believe.

Angels look for what is known as a scalable business, meaning that the business has strong potential to capture a certain segment of its market, and ones that can generate significant increases in sales without a large ramping up of more overhead, management and fixed costs.

As well, angels are looking for companies that are unique, or at least their product is. With a technology or product not easily duplicated in the market place, investors look for companies that can jump into a market and be a leader almost from outset, and without barriers to achieving that level of success.

Next, angels are looking for strong business leaders/strong management within the new business. Those who have had prior start-up experience, especially with angel investing, even if unsuccessful, are particularly attractive. Creating a strong management team within the new company is key to winning over angel investors. The confidence that the team exhibits when meeting and presenting to prospective investors increases the chances of angel investors making a commitment.

A viable exit strategy is another winning component to attracting angel investors. The business plan should lay out how and when the original investors may sell their shares of stock while the company continues to operate. In other words, angels are looking for the potential of a strong upward curve in the value of a company (its stock price) so that they may sell at a profit and move onto their next investment.

Vision Economics has been involved over the years in a number of angel investment opportunities. Some have worked out, while others did not. If one is looking to attract angel capital, it is useful to know that on balance, for every ten angel investment opportunities that are presented to angel investment groups, only one, two at the most likely will be funded. Seeking angel investment is not for the faint of heart, however if you believe in your product, your industry and your team, and you have a compelling story to tell, seeking angel investment can be a great and profitable experience.

If you are interested in having an assessment as to whether you are a viable candidate for angel investing, please contact us at Vision Economics, 805-987-7322. We work with a number of angel investors in various fields who are always looking for investment opportunities.

A Slippery Slope – Start-Ups & Young Companies Often Involve Borrowing from Friends and Relatives

By Gary Wartik
July 30, 2014

Web writer Lisa Ferguson often writes about business issues of interest. She recently visited the touchy subject of borrowing from the “family,” so to speak, in order to launch a new business, recapitalize an existing one or to meet a cash crisis.

Let’s focus on start-ups. It is a given that most banks are very reluctant to loan to you while you are in a business start-up mode. The reasons vary, but most particularly, the new business has no obvious track record of success upon which a lender may base a lending decision. So, start-ups often are financed by personal funds, family and friends, and frequently as well, with credit cards. Sometimes start-ups are fortunate enough to generate what is known as “Angel Investment,” or outside investors. That is the subject of our next article to follow.

Probably the first admonition I would offer is to handle the matter in such a way as to keep the friendships involved and the goodwill of family members intact. This means that you will need to be honest in the approach, telling the friend/family member what the company issues are and why borrowed funds are needed.

It is also important to determine whom to ask, for not every friend or relative is a good prospect. Whomever one asks, they should have the financial means to make the loan and the ability, to some extent, to absorb the loss if the start-up business is unable to provide repayment.

Especially among close relatives and friends, the so-called “ask” should be easy to decline. In other words, with important relations possibly at stake, a loan made under pressure is not a good situation, especially if repayment cannot be eventually made.

With regard to the “ask,” you will need a strong business plan that lays out clearly and honestly the goals of the start-up and the use of all funds generated in the initial stages of the business. As part of the process, the business plan or the financial section of that plan needs to define how borrowed funds will be repaid, including the timelines. This should be part of the financial plan’s Use of Funds section of the business plan.

Determining how much money the start-up needs, and what is needed from each individual lender is another component of the process. One of the worst things that one may make is to either to ask for too little or too much money in terms of the start-up’s needs. Asking and acquiring too little initial funding is a prescription for business failure, and the damaging of the relationship with the family members and/or friends from whom you may have borrowed. Conversely, asking for more than is needed may result in being declined by those from whom you may seeking loans. Carefully laying out in the business plan the need and use of funds is thus very important.

Next, many relatives and close friends may make a loan without “strings” attached, even doing so for an initial period without interest. Others may want something in return such as a reasonable interest rate, perhaps tied to inflation. All of these issues may be impacted by the length of time one may need the borrowed funds. The longer the loan period, the more the individual lender will likely expect in return. The issue of collateral may also be raised by the relative or friend/lender, although among close friends and relatives this generally is less of an issue. Should the request for collateral be made, it should be carefully considered, keeping in mind the amount involved and length of the loan period.

Memorializing the lending agreement in writing, perhaps with a Straight Note or some of other type of writing, is strongly recommended. A written document reflects the seriousness with which you may view the loan for the start-up, and may offer some comfort to the relative or friend that you are serious about the new business and the ability to repay the loan within its terms.

In closing out the process, as the start-up entrepreneur you will always want to offer your appreciation for the loan. A warm note of thanks is always appropriate, perhaps accompanied by the loan/note document mentioned above.

Vision Economics is available to assist in the entire business plan and lending process. If you need assistance, please give us a call at 805-987-7322, or visit us on the web at

There is more to the Debt Management Story than Previously Offered

By Gary Wartik
July 30, 2014

Despite the end of the Great Recession three years ago, there are many Americans still in their own personal recession, or even depression. According to an Urban Institute report published July 29, more than one third of Americans have some kind of collection action pending against them. This data highlights the challenges Americans face in turning around their own personal economies.

Syndicated columnist Michelle Singletary wrote an article focusing on credit card debt, “Losing debts takes discipline,” which appeared in the July 17 Ventura County Star. Ms. Singletary correctly noted that resolving credit card debt can be very challenging and time consuming. She noted that card holders often turn to debt settlement companies to resolve their debt because people are “….desperate for a quick fix.” What was not included in the article were other more effective approaches to resolving credit card debt.

Ms. Singletary suggests that card holders should, on their own contact the banks issuing their credit cards to work out a repayment plan. There are more effective alternatives. Since 2009, our office has worked with credit card holders in the resolution of nearly $5 million in card debt. The average account was in the $60,000 range, with many in excess of $125,000. Ms. Singletary recommends that card holders continue making minimum required payments while negotiating a favorable repayment program in order to avoid more interest costs. Our experience offers a more cost-effective approach for cardholders.

During the worst of the Great Recession, we found that cardholders directly approaching banks usually did not generate a favorable settlement if the card holder continued to make minimum monthly payments. Nothing has changed today. Instead, in most cases our approach is to have the cardholder cease all payments to the banks because, unfortunately that is what it takes to get the bank’s full attention. If one continues to make minimum payments, banks love that, especially at interest rates that may run as high as 29-33 percent. When payments cease, banks generally recognize that they will need to work more diligently with the card holder to resolve the debt.

Ms. Singletary noted that ceasing monthly card payments impacts one’s credit score. However, in the average case that we see, the accumulated debt is at least a year or two old, and those facts have already negatively impacted the credit score. We take the approach that we can’t do much about the poor credit score, so we just focus on a cash settlement, or very short settlement payment schedule to resolve the debt, usually with forgiveness of much of the accumulated interest. Once debt is settled, credit scores will then tend to rebound with careful use of future credit.

Many cardholders have an ability to generate some cash with which to settle their credit card debt. The old saying that “cash is king” remains as true today as ever. In nearly every case, cash settlements produce better results for card holders than bank-sponsored repayment programs or those pushed by debt settlement companies. Frequently the source of cash is a family member; others reduce expenses or sell some assets to generate cash, or they have access to their own limited cash over time.

Our clients make settlement payments directly to the credit card issuer; we do not handle their funds, nor do we guarantee specific results. What we can report, however, is that cash settlements average in the 25 to 35 percent range on the dollar; some occasionally run to 50 percent. Our most notable cash settlement involved a personally guaranteed $113,000 note on which we negotiated a $14,700 settlement with a major bank in 2012. This effort was a great deal of work and took two years to accomplish. The client was in a very difficult situation, something that the bank finally came to realize in the face of appropriate supporting documentation.

Cardholders should always honor their obligations if they are able. We do not support the concept of a free ride without fairly compelling circumstances. However, many people suffer business reversals, an illness or some other notable setback that has appreciably reduced their income. As a result we make our best effort directly with the bank to settle the debt at the lowest cost to the cardholder.

Gary Wartik is the senior principal at Vision Economics in Camarillo, CA, a business consulting and economic development firm founded in 1988. He may be reached by writing to, or by calling 805-987-7322.

Much Has Been Reported – So Where is the California Real Estate Market?

By Bill Watkins, Ph.D.
Edited by Gary Wartik
July 10, 2014

Among the driving forces in the American economy are retail sales, representing some seventy percent of the economic market, and the sale and appreciation within the residential housing sector. In this article, Bill Watkins offers his analysis of the current residential real estate market. He also reflects on the changing commercial real estate market which, for reasons offered, has been slower to recover in this post Great Recession period.

Residential markets are behaving exactly as we expected. Investors jumped in the markets after the rapid price declines that contributed so much to the severity of the recession. Then, those investors bid prices up to where the present value of the expected cash flows just met the required return given the risk and the investment horizon. Now, while there may be some opportunities remaining for investors, there aren’t many. Most of the large investors have left or are leaving. The remaining opportunities are best exploited by smaller investors with intimate local knowledge.

Price gains slowed or ceased with the exit of the institutional investors, and in some markets prices have even declined. Many analysts and market participants were surprised by the end of the run-up, but they shouldn’t have been surprised.

A healthy real estate market requires new market entrants. From 1995 through about 2005, a large number of the new market entrants were first-time buyers taking advantage of sub-prime loans with little or no down-payment requirements. That turned out to not be all that healthy.

Traditional terms were in place because experience had shown that they provided a high probability that the buyer had resources to maintain a home through good times and bad. When times turned bad it became painfully obvious that many of the buyers under the new lending regime didn’t have the resources to maintain a home through good times and bad.

Prior to 1995, about 64 percent of the United States households owned the home which they lived. Relaxed lending standards pushed that up to almost 70 percent. It’s now about 65 percent. Relaxing lending standards is not a sustainable way to create new market entrants and healthy real estate markets.

Immigration is another way to increase the number of new market entrants. However, under current immigration policy, immigration is relatively low (even if that’s not the public perception) and many immigrants, perhaps most, do not have the resources to be immediate home buyers. Given the divisiveness of the issue and the proposals we’ve seen so far, we don’t expect to see big increases in home demand because of immigration.

That leaves new household formation by young people as the only possible remaining source of new market entrants. They tend to enter real estate markets because of financial independence, marriage, or the birth of children. Unfortunately, our young people have been among the primary victims of the recession.

Our young college graduates are having a difficult time finding any employment, much less the sort of employment they expected while in college. Many are underemployed. Many are working part time. Many are burdened with high college debt.

In short, our young people will not be buying homes in large numbers until our economy is considerably more robust than it is. So, we don’t expect to see sustainable healthy residential markets within the forecast horizon, two years.

That doesn’t mean we expect to see home prices decline. Investors are there to take advantage of any price decline. In a sense, they provide a price floor. Prices, therefore, are likely to remain flat through the forecast horizon. Sales volume will likely be low. New construction will likely be modest.

We also don’t expect to see strong commercial markets. The weak recovery is a reason, but changing technology is probably a bigger reason. On-line sales will continue to take ever more sales away from brick-and-mortar retailers, obsoleting less attractive retail locations. Ever-improving communications technology will continue to reduce the need for office space. Changing technology and globalization will reduce the need for production and warehouse space.

Medical space could be the sole exception to generally soft commercial markets. Our population is aging rapidly, and our seniors are the wealthiest the world has seen. This, along with increasingly expensive technology, should create increased demand for medical space. Absent the Affordable Care Act, increased demand for medical space would be almost a sure thing. As it is, medical providers are holding pat, paralyzed into indecision by the huge uncertainties they face.

Over the next year, I expect to see lots market analysts trying to explain why sales prices and sales volumes remain below what they expected. Only a few will get it right.

If your community or company needs an assessment of the economic dynamics within your area, Vision Economics and Dr. Watkins and his team at the Center for Economic Research & Forecasting are available to meet those needs. Please call us at Vision Economics at 805-987-7322 for further information.