Expert Perspective

This year’s Builder & Developer Luncheon offers a healthy outlook.

Peoples Company’s 9th Annual Builder & Developer Luncheon, held at the Sheraton Hotel on February 19 in West Des Moines, once again featured an enlightening presentation on the economic outlook, both nationally and locally.

This year’s speaker, Dr. Elliot Eisenberg, offered a lively take on the current economy, complete with bow tie, one-liners, and laughter—not your typical economics class.

Dr. Eisenberg, a nationally acclaimed economist and a much in demand public speaker, declared at the outset, “I think our economy is fundamentally healthier than it’s made out to be.”

Then he spent the next 30 minutes proving his point.

Numbers to watch

According to Eisenberg, the most important economic number is gross domestic product (GDP). “If GDP is doing well, everything else will do well,” he said.

Eisenberg said the economy, despite warnings to the contrary, is fairly stable right now thanks to household consumption, which is 60% of GDP. He added, “We’re going to be fine, and here’s why: because household consumption is going to do just fine, thank you very much.”

Three of the key indicators Eisenberg recommends we all keep watching:

  1. Household consumption
    Steady and growing household consumption indicates a very positive economic outlook. Eisenberg believes this is a reflection of the strong housing market.

    “More Americans own homes than stocks,” he explained. “So their outlook tends to be more closely related to the housing market than the stock market.”

  2. Strength of the dollar
    The current strong dollar is a blessing and a curse, in Eisenberg’s view, because though a strong dollar reduces inflation, it also hurts employment growth.

  3. Labor market
    This is the most important number to watch, Eisenberg said.

    The number of workers looking for employment compared to the number of open jobs is lower than it was during the housing boom or the dot com boom, which makes for a strong and healthy labor market.

    “The catch? Wages are stagnant,” Eisenberg said. He said this is a key factor in the health of the economy.

    “The middle class has not seen wage growth during this recovery,” he added. “It’s been primarily an upper class and upper-middle class recovery.”

    However, the strong labor market with its low unemployment rate means employers will have to raise wages to draw employees, so wage growth will finally spread to the middle class.

Predictions for the future

Although Eisenberg focused on key economic indicators his audience could use to monitor the economy themselves, he also provided a few predictions for the year ahead.

  • Interest rates, if they rise at all, will do so very slowly.“The Fed is unlikely to raise rates,” he predicted. “If they did, the economic outlook would worsen, and they don’t want that to happen right now.”
  • The housing market for young buyers will remain poor. The combination of high student loan debt, low-paying jobs, increased housing costs, and low inventory of entry-level homes means millennial buyers have few options.
  • Housing starts for Single-family will remain low. In part because of the poor housing market for younger buyers and the low single-family housing starts, Eisenberg expects sales of existing homes to increase as much as 6%.
  • No improvement is expected in the labor force. In addition to the low unemployment numbers, a shortage of qualified workers could be a major concern if the workforce doesn’t start growing.

Advice from the expert

Eisenberg’s parting advice to the audience of builders, developers, and real estate professionals was to follow the numbers. “Anyone not targeting 23-year-olds is not only missing the biggest opportunity in years but the biggest market for the next several decades,” he stressed.

Millennials make up the largest portion of the buying public, Eisenberg pointed out, which means they’ll be the biggest market for move-up buyers in about a decade and the biggest market for executive homes and for retirement homes after that.

Eisenberg’s witty presentation reflected his positive outlook on the economy. And you have to trust a man wearing a bow tie.

A Highlight Event

The Builder & Developer Luncheon is a highlight of the preseason for area professionals. This year, its ninth, saw nearly 300 attendees eager to get an expert perspective on the market.

According to Steve Bruere, President of Peoples Company, “We like to provide these events as a thank-you to our customers and vendors. It also allows us to position ourselves as an expert in the marketplace and provides a great networking opportunity for those who attend.” He added that the event always provides “great insight onto both the local and national real estate markets.”

When planning the luncheon each year, Peoples Company looks for speakers that bring a fresh perspective to the table.“We don’t vet the speaker to make sure that their message lines up with our message,” Bruere emphasized. “We like to get speakers who challenge conventional wisdom and leave our attendees with some thought-provoking information.”

That was definitely the case this year. “Elliot has more of a national perspective, so he may not appreciate the challenges facing Iowa as an agricultural state, but his views were well-received and absolutely right on target,” he observed.

The Local Picture

Kalen Ludwig, Peoples Companies New Construction Specialist, concluded the luncheon with a presentation on the local housing market. Here are a few of the highlights:

  • Housing inventory is the lowest it’s been in a decade. A six-month supply is considered a stable market. The Des Moines metro currently has less than a three-month supply.
  • Home prices have risen faster than wages. Over the past several years, sale prices have increased an average of more than 7%, while wages have remained fairly stagnant.
  • The huge void in new homes at or below $200,000 continues to be a concern. This shortage has led to an increase in townhome and villa communities.
  • The lot shortage seems to be behind us. Land in development appears to be rising, but any dramatic slowdown in the market could result in developers sitting on high-priced lots they’re unable to sell.

Overall, Ludwig said, builders and developers are upbeat about the housing market in central Iowa. “Proceeding with caution seems to be the approach for 2016,” she said.

Want to learn more?

Click here to see all of the statistics from Ludwig’s presentation!