New Year Brings New Opportunities For Residential Real Estate Rentals In 2017

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Three things to keep in mind for 2017: the economy will grow at a slower rate, home prices will continue to rise, but more people will want to rent. This isn’t much different from 2016 but the risk of investing will be higher in some local markets.

The Economy

The Federal Reserve believes the economy is “strong” and will do even better next year. My company, Local Market Monitor has been busy running the numbers and thinks this is pie-in-the-sky optimistic.

The US economy moves in tidal waves that ebb and flow for years at a time. This is especially true for jobs. After the 2008 recession, job creation built back to a peak of 2.3 percent in early 2015 and since then it’s receded to a 1.6 percent annual rate. Maybe another wave of growth will follow in 2017, but I doubt it. Some important stats say further slowing is more likely.

Two special indicators – new jobs in trucking and in new jobs in temporary services – which both soared after the recession, have now dropped to their lowest level since then. Trucking jobs move goods to stores, and temps are the last ones hired before businesses stop hiring altogether. Lows in these areas are tough to square with a “strong” economy.

Job statistics tell us what the economy is likely to do, but they don’t tell us why. To better understand what will happen with jobs – and therefore with real estate – we need to look at the longer-term situation of American consumers, who drive the economy but can only spend money when they make money. Or when they borrow it.

Before the last recession, consumers had borrowed – and spent – vast amounts of money against the value of their homes. When they could borrow no more, spending stopped and the recession started.

The next slowdown will probably happen when consumers are up their eyeballs in the vast amount of debt they have taken on to pay for college.

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