National Economic Outlook- February 2015

Written By:
Ingo Winzer, President

Local Market Monitor

The economy has picked up steam in recent months. In January, the number of jobs was 2.4 percent higher than last year, the strongest growth rate of the last decade. Does this mean that real estate will be following right behind? It's been a very modest recovery so far - for the economy in general and real estate in particular, with demand in many markets driven by speculation in foreclosed properties, and new construction largely limited to apartments and high-end homes. Bankers have survived with refinancing’s but most of the juice has been squeezed out of that orange; bankers and builders both need more young couples who want a single-family home.

Despite the improving economy, they may not find as many as they'd like. Not only are young people more inclined to rent apartments in city centers for social reasons, they also carry a high level of student debt that puts a home mortgage out of reach until they're older. And there are fewer of the older ones: the number of people aged 35 to 44 decreased from 43 million in 2005, to 41 million in 2013.

Although a portion of the real estate market will always consist of regular mortgages and single-family homes on quarter-acre lots, it's easy to imagine more affordable townhouse construction that can double as apartments, and mortgages that have lease-to-own features similar to car contracts.

The strong economic performance in January was largely due to increases in manufacturing (jobs up 1.9 percent), retail (2.0 percent), business services (3.9 percent), healthcare (2.6 percent), and restaurants (3.9 percent). Note that many of the new jobs have fairly modest pay. The recent increase in healthcare jobs probably follows directly from the larger number of people with health insurance, but is almost certain to have legs because of the rapid increase in the older population; in many local markets, healthcare is THE growth industry.