National Economic Outlook - March 2015

Written By:
Ingo Winzer, President

Local Market Monitor

In the long run, the economy and the real estate market are intertwined. In the short run that's not always true. Since the end of the recession - since 2009 - the economy has straggled along without any help from the real estate market (or the government, for that matter). There's been a fair amount of real estate buying, but mainly by investors making a play for the millions of foreclosed properties. Home construction - the kind of real estate transaction that creates jobs - has been stuck in first gear. Setting aside recent years, the level of construction in 2014 was the lowest since 1990 - when the country was in a recession.

Surprisingly, the economy is now doing well without the stimulus of construction. This seems partly due to the new healthcare law - more insured people equals more healthcare, which equals more healthcare jobs - and partly to the end of the off-shoring of manufacturing jobs. From 1990 to 2010, 6 million manufacturing jobs were eliminated in the US, but since then almost a million have been added back.

This reordering of the economy feeds into a reordering of the real estate market - less demand in the middle but more at both the top and the bottom. More demand for higher-end homes and more demand for rentals and lower-cost townhouses and condos.

The number of jobs in February was up 2.4 percent from last year, while unemployment fell to 5.5 percent. Jobs were up 1.8 percent in manufacturing - mainly for durable goods like machinery, cars and transport equipment; significantly, the number of jobs in the off-shore-endangered textile industry held constant. Jobs were up 2.1 percent in retail, 4.5 percent in transportation - a strong marker of economic activity - 3.6 percent in business services, 2.5 percent in healthcare, and 4.2 percent at restaurants. As usual, the government added nothing.