National Economic Outlook - November 2016

Written By:
Ingo Winzer, President

Local Market Monitor

The Trump administration will probably launch a local infra-structure construction program to boost local incomes. The money to pay for this program will have to come from increasing the deficit, which will mean higher interest rates.

The combination will increase demand for homes but also the cost of buying them, and will accelerate the trend towards more renting.

Throughout most of the Rust Belt, where Donald Trump won strong support, prices for homes remain very low - partly because the local economic situation has for years been very poor. If government money is routed towards these most visible areas of economic stagnation, local home values will rise for years, as will demand for single-family rentals.

Jobs in October were up 1.6 percent from last year, the slowest rate of growth in three years. Jobs were down 1.2 percent in manufacturing, but up 1.5 percent in retail, 2.1 percent in finance, 2.7 percent in business services, and 2.6 percent in healthcare. Government jobs were up almost 1 percent, mainly at the local level.

Jobs in truck transport were up just 0.4 percent, a very negative development, and temp jobs were up 1.8 percent, also an indication of slower growth.

Overall, the economy has been growing at a slower pace during the past year, with the prospect of even lower growth in 2017 and 2018. A government construction program, even if it can't kick in for a while, will come at just the right time to reboot the economy.

National Economic Outlook - September 2016

Written By:
Ingo Winzer, President

Local Market Monitor

What will it mean for real estate when the US economy slows down? That's not an academic question - we're seeing hints of slower growth already. The last recession was coupled with a real estate disaster, but my guess is that a slowdown this time will actually have no dramatic effects.

That's partly because mortgages and home building haven't provided much of a boost to the economy during this cycle, despite interest rates close to zero; so we don't have the artificial risk structures that came crashing down the last time. What we're most likely to see in a lower-growth environment is more of the same from the last few years: home prices still rising in some markets because there hasn't been enough new construction; prices stagnating in smaller industrial markets because people aren't moving there; and a continuing shift towards renting almost everywhere.

As our economy relies more on service jobs - and with computers doing what used to be management - the income gap increases and the attractiveness of home ownership decreases. A slower economy will mainly hasten those changes.

Jobs in August were up 1.7 percent from last year - part of the slowing trend. Jobs were up just 3 percent in construction (for construction, 3 percent is close to nothing), down slightly in manufacturing, up 1.8 percent in retail, 2.7 percent in business services, 3 percent in healthcare, and 2.5 percent at restaurants. Our leading indicator of growth - temp help services - was up 1 percent, we can worry when it goes below zero.

National Economic Outlook - August 2016

Written By:
Ingo Winzer, President

Local Market Monitor

Despite the best efforts of government officials to pull the right levers, the US economy still runs in cycles. In fact, it seems prone to bigger swings despite more regulation of the details of business - a sort of forest-and-trees situation.

While it's too soon to panic, one coal mine canary has signaled that the cycle is again turning. Over the last few months, the number of new temp jobs has slowed sharply. This used to be mainly secretaries but now includes anything from computer programmers to machine operators. There are more than 3 million of them and they are the tide in our outsource economy, easily ebbing and flowing with business needs - and foretelling the last three recessions. Last year they increased 4 percent, this year just 1 percent. We'll keep an eye on this.

Jobs in July were up 1.7 percent over last year, confirming the slower growth we've seen the last few months. Jobs were flat in manufacturing and government, up 2 percent in retail trade, 2.6 percent in business services, 2.6 percent at restaurants, and 3 percent in healthcare. Unemployment remains at 4.9 percent.

Finally reacting to higher home prices and rents, the construction sector added 200,000 jobs in the past year. A slower economy would crimp that expansion, which would put current property holders in a strong position for years.

National Economic Outlook - June 2016

Written By:
Ingo Winzer, President

Local Market Monitor

Over the last ten years the percent of households that own a home fell from 69 percent to 63 percent. Not surprisingly, the biggest drop was felt by younger adults. Homeownership in the crucial 35 to 45 age range dropped 6 percent in just the last 5 years. Crucial, because families in this age range who rent, once settled down with children, are less likely to buy a home in the near future.

At the other end of the age spectrum, homeownership for those over 65 didn't drop at all until just this past year, when it edged lower. This could be the start of baby boomers selling their northern homes and moving south. If so, the combination of older and younger Americans opting out of owning will affect housing markets for the next decade.

The economy is growing at a slower pace. Jobs in May were up 1.7 percent from last year, compared to 2.0 percent in previous months. If we see similar figures through the summer, a significant change will be underway.

Part of the slower growth was a drop of half a percent in manufacturing jobs, largely in metals and machinery - probably associated with energy extraction equipment. Retail jobs were up 2 percent, restaurant jobs up 3 percent, so consumers continue to spend freely. Healthcare jobs were up 3 percent, business service jobs were up 2.7 percent - a significant slowing from previous months.

A breakdown of the financial sector shows that the long loss of jobs at commercial banks is over. Meanwhile, more jobs are now at investment funds and in non-bank lending. Does this mean we have less risk in the financial system or just that less of the risk is regulated?

Unemployment in May was 4.7 percent.

National Economic Outlook- April 2016

Written By:
Ingo Winzer, President

Local Market Monitor

From 1990 to 2000, manufacturing production in the US increased 50 percent. From 2005 to 2015 it was flat. There was a recession, which accounts for some of the stagnation, but growth in the next 10 years will probably be very mild - which means that it won't create new jobs. After a short run in 2014, job growth in manufacturing in the past year was zero.

Even though manufacturing production is now 70 percent higher than in 1990, the number of jobs in the industry is now 5 million lower - a decrease of 30 percent.

These are important facts for real estate because they make clear that future homeowners will have jobs in the service industries, where employment is less secure and pay - except at management levels - is often lower.

Total jobs in March were up 2 percent from last year. Jobs were up 5 percent in construction - good but still not indicating a rebound in demand; up 2.5 percent in retail trade; up 3.1 percent in business services; up 3.4 percent in healthcare; up 3.4 percent at restaurants; and up 100,000 in government - 0.5 percent - all at the local level.

Unemployment was up slightly to 5 percent.

National Economic Outlook - March 2016

National Economic Outlook - March 2016

Written By:
Ingo Winzer, President

Local Market Monitor

The percent of people who live in a home they own has varied between 63 and 69 in the last 50 years. The difference doesn't seem like much but it translates into 6 million homes.

From 1994 to 2004 the home ownership rate rose from 64 to 69 percent, abetted by government policy, low interest rates, and finally by the wide availability of sub-prime mortgages. Since that peak it fell steadily to 63 percent last year.

We might just be back where we started, but we might also be going into new territory. The fact that the rate was slightly higher at the end of 2015 than at the beginning suggests demand for single-family homes will soon begin to increase. On the other hand, the large amounts of debt younger people already hold from college loans suggests that fewer of them will qualify - or want to qualify - for a mortgage for quite some time. I think the latter possibility is more likely.

Total jobs in February were up 1.9 percent over last year. Jobs were up a measly 0.2 percent in manufacturing, 2.3 percent in retail trade, 3.2 percent in business services, 3.5 percent in healthcare, and 3.3 percent at restaurants. As usual, government jobs were virtually flat. Unemployment remains at 4.9 percent.

Jobs in trucking - the movement of most goods around the country - were up just 1 percent in January, the lowest rate in five years.

National Economic Outlook - February 2016

National Economic Outlook - February 2016

Written By:
Ingo Winzer, President

Local Market Monitor

In the long run, the relative prosperity of a country depends on producing things that other countries want. Among the desirable things the US currently produces are food, complicated manufactured goods like airplanes, technological and scientific knowledge, and political stability. Technology and science have allowed the US economy to thrive but at the cost of concentrating income in fewer hands; technology and science are an elite specialty. As job-intensive manufacturing has moved off-shore, job opportunities for the majority of American workers are now confined to lower-pay service industries.

Since 2000, the US has added 10 million jobs, ALL in the service industries. This rapid shunting to lower-paid jobs indicates a permanent shift to lower-cost housing: smaller houses, more apartments, more single-family rentals.

Total jobs in January were up 1.9 percent from last year, following the trend of recent months. Jobs were up just 0.4 percent in manufacturing, but 2 percent in retail trade, 3.3 percent in business services, 3.3 percent in healthcare, and 3.6 percent at restaurants. Jobs in government were flat. Unemployment slid to 4.9 percent.

Somewhat ominously, the growth of jobs in transportation - mainly the movement of goods - has steadily fallen, from 5 percent a year a go to just 1.5 percent in January.

National Economic Outlook - January 2016

National Economic Outlook - January 2016

Written By:
Ingo Winzer, President

Local Market Monitor

The real estate construction industry is fragmented and highly conservative. Local builders and their bankers don't increase or decrease the volume of their activity unless the reasons to do so are very strong. This makes sense because construction works best at an even pace, but it also means that the industry as a whole doesn't easily respond to changes in demand. Hence real estate cycles.

Overall, we are now at the stage of the cycle where not enough construction has taken place and builders are just gearing up for more. In the past year, jobs in residential construction increased 6 percent. This is a sure sign of higher demand, but also a sure sign that rents and home prices in many markets will be going up.

Total jobs in December were up 1.9 percent over last year. As in previous months, gains were small in the manufacturing sector. Jobs were up 1.7 percent in retail trade, 3.1 percent in business services, 3.2 percent in healthcare, and 3.4 percent at restaurants. Government employment was flat. Unemployment stayed at 5 percent.