good income for construction workers, lenders and Realtors. Then the crash came. Home prices dropped 15 percent in four years (much more in some places); 2 million jobs were lost in construction; and the homeownership rate is now back to 64 percent. But the crash did more than bring us back to where we started. It revealed that much of our spending in the past decade was not due to a wealthier and higher-income society, but to one that was financing purchases by piling up more debt. It revealed that fewer — not more — people can afford to buy a home. And it revealed the extent to which ordinary people are in hock. Adjusted for inflation, consumer debt (mortgages not even included) doubled from 1990 to today — to $12,000 per man, woman and child. WHOARE THE CUSTOMERS? Those annoying baby-boomers (I’m one), who stoked the real estate markets for decades and heedlessly piled up debt, don’t play much of a role in real estate anymore. They already own a home and are more likely to be selling than buying in the next few years. The good news is that the generation that follows is now in the prime home- buying age bracket. There are 85 million people in the 25-to-44 age group; by 2025 there will be well over 90 million. This is the group that will be buying homes or renting apartments. The bad news is that they don’t — and won’t — have much money. The American economy just isn’t producing a lot of high-paying jobs anymore. Four and a half million new jobs were created over the last two years, but only 12 percent of them pay more than $1500 per week. And in addition, this generation carries a lot of debt — most significantly

a trillion dollars of student loans.

had this mix of markets, but this time the mix is extreme. We’ll have many markets that are mediocre and just a concentrated few where home prices will increase until they inevitably get out of hand. Just 50 cities now account for 75 percent of the U.S. economy.

BIFURCATED REAL ESTATE MARKETS When America was young, cities that prospered were on transportation routes (ports, rivers, railroads) or close to natural resources (coal, iron ore, wheat). These days, successful cities have research universities, a specialized workforce, the outsourced services that companies need, and the urban infrastructure that workers find congenial. These demands have created two types of real estate markets: Those where builders can’t keep up with the influx of new workers and prices are rising sharply; And those where there isn’t much growth and prices will rise very slowly. You can say we have always

2018 and Beyond


by Ingo Winzer, Founder and President, Local Market Monitor

in 2008 revealed several fundamental weaknesses of the U.S. economy and, more immediately, the real estate markets. Before the crash it seemed that more Americans were able to buy into the home-owning middle class. For years government policies had encouraged homeownership, through direct government programs, though pressure on banks to expand lending, and by encouraging the Federal Reserve to keep interest rates low. These policies bore fruit: the homeownership rate rose from

64 percent in the 1980s and 1990s to almost 70 percent in 2005. At the same time, the steady rise in home prices seemed to create greater wealth for most American families. From 1990 to 2005, home prices more than doubled, while inflation was just half that. The equity people had in their home — for most, their biggest investment — grew steadily. And the real estate sector created a ton of new jobs — an increase of 2 million from 1990 to 2005 — that provided a

IFYOU READ NO FURTHER In 2018 we will see a number of markets where home prices climb into bubble territory. Renting will continue to be a popular option. And while some markets will have strong growth, a much larger number will grow at a very modest rate.

FALLOUT FROMTHE CRASH The big real estate crash that began

60 | think realty magazine :: march 2018

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