Where Do We Stand Now? A new president, a new economic plan—what it means for real estate

When I was asked to write this article I did not know who would be occupying the White House for the next four years.

In June of 1949 the DOW Jones stood at about 167 points and was rising; in January of 1960 it was 640, on October 2, 1972 it hit a record high of 1,020 points. For the most part, from 1960 to 1982, the DOW Jones was going through typical up and down cycles. Periods of recessions were followed by periods of expansions. Since 1960 there were 4 recessions 1960, 69, 73, 81. For two decades the DOW Jones hung around 800 points, up until the computer revolution of the 1980’s. From 1982 we have witness relentless rises, and a  record high of 14,093 in 2007

During Kennedy’s election campaign, he charged that under Eisenhower and the Republican Party , the United States was falling behind and he, as President, would “get America moving again.”

In his acceptance speech Kennedy stated: “We stand today on the verge of a new frontier- the frontier of the 1960’s, a frontier of unknown opportunities and perils- a frontier of unfulfilled hopes and threats.”

I have read headlines from the 1960 presidential election and they are strikingly similar with what we observed during the 2008 presidential campaign. I believe that we are experiencing a “”déjà vu”, this is familiar rhetoric.

For the Real Estate Industry it will make a little difference who will occupy the White House for the next 4 years. One thing is clear;  taxes will most likely go up. Our last economic expansion which started in 2001 was fueled by cheap credits.  We have borrowed heavily. As of February 2008, the national debt equated to $33,000 per capita or $60,100 per head of the U.S. working population.

According to a J.P. Morgan Chase forecast, we will see 3 quarters of recession followed by 12 quarters of slow growth. BLS reports “the median annual earnings, including commissions, of salaried real estate sales agents were $39,760 in May 2006. The middle 50 percent earned between $26,790 and $65,270 a year. The lowest 10 percent earned less than $20,170, and the highest 10 percent earned more than $111,500.

Median annual earnings, including commissions, of salaried real estate brokers were $60,790 in May 2006. The middle 50 percent earned between $37,800 and $102,180 a year.  Many real estate brokers and sales agents worked part time, combining their real estate activities with other careers. About 61 percent of real estate brokers and sales agents were self-employed. Real estate is sold in all areas, but employment is concentrated in large urban areas and in rapidly growing communitiesEmployment of real estate brokers and sales agents is expected to grow 11 percent during the 2006-16 projection decades.”

I would argue that BLS fails to recognize the most recent trend. In the past, employment was growing because of the accessibility of low-cost credits and unprecedented economical expansion  partially because of population growth. However, in the future we will see a number of agents and brokers decline because small businesses will be forced to consolidate into larger ones. Improvements in productivity, innovations and advancements in technology will make it possible for each agent to sell more. Stiffer completion and higher entry level (both financial and technological) into RE realm will lead to less number of agents and higher income per agents.

The availability of computers and proliferation of the Ethernet is creating a  new paradigm: “Ethernet search-Ethernet tour-Agent demonstration-Ethernet mortgage-Ethernet closing”.  In this new and brave cyber world, the agents with the biggest technological edge will win. It means new customer relations. It will be cyber Real Estate world with an increasingly larger budget to spend on Ethernet marketing, lead generation, office automations, SEO, etc. It also means a mobile world. We will see more innovations with  real estate applications for digital cameras and smart phones, with a wider acceptance of smart phones.

Although I do not have a crystal ball, it is safe to predict that after a few dormant quarters we will return to periods of fast growth.  Prices of properties have declined substantially, making many areas look very attractive now. Immediately after the buying period, the public will regain confidence and recessionary fears will subside; we will see frantic buying.  I have mentioned on a few occasions at PropertyMinder’s blog posts that prices of oil and other commodities most likely will continue to slide down and may stay low for some time. This undoubtedly will have a positive effect on core US industries including construction, and will help maintain a high employment rate and stimulate consumer spending.

The United States has had public debt since its inception. Between 1980 and 1990, the debt more than tripled. By the end of 2008, the total U.S. federal debt will pass the $10 trillion mark. This is about $33,000 per capita. Adding unfunded Medicaid, Social Security, Medicare, and similar obligations, this figure rises to a total of $60 trillion, or $500,000 per household.

During the recession time, it is risky for the government to reduce spending. Reduction of spending may lead to deeper recession; therefore the next President will have very limited choices, they are either to increase taxes or reduce spending.  And I believe that the new cabinet will do both.  Some government programs will be cut, and some form of tax increase will be expected.  RE industry is one of the pillars of the US economy, therefore the government will try hard to jump start it by continuing to offer low interest rates or some other incentives.

The unemployment rate among agents and brokers will be at a low of about 4%. New exciting opportunities in RE industry will be discovered on the junction between high tech selling and marketing, and old fashion salesmanship.

In conclusion, the next President will have very little effect on RE industry’s health. What  fueled the unprecedented rise of the stock market during the past 25 years were innovations, proliferation of computer technologies and Ethernet. That in turn helped RE industry to grow. Within the next decade, I believe that we will see another expansion phase in our ever cyclic economy due to new discoveries and innovations with technological break throughs.

Boris Gruzman, CEO

One Response to “Where Do We Stand Now? A new president, a new economic plan—what it means for real estate”

  1. Myrtle says:

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