What Everybody Ought to Know About The Fiscal Cliff

President Obama has another four years, and there is a good probability that bipartisan cooperation will prevent the economy from going over the federal budget fiscal cliff. The current presumption is that the politicos do not want a replay of Thelma and Louise. There will likely still be some brinksmanship. but it is most probable that some agreement will be reached. The economy will be enabled to breathe more comfortably and move to a growth rate in GDP of about 2 percent for the rest of 2012 and through 2013.

The Federal Reserve has pledged to maintain interest rates at record low levels. Low interest rates have supported the development of numerous new multifamily developments. In Chicago, eleven new apartment projects have been announced and six are under construction or have been completed.

The homeownership rate prior to the October 2008 market meltdown was 69 percent and is currently at 65 percent. Studies indicate that there is pent up demand for the formation of 4 million new households. This formation initially leads to demand for an apartment but then eventually leads to demand for housing units. In a related story, Home Depot reported earnings of 74 cents a share which beat the 70-cent Wall Street estimate. Home Depot attributes this earnings increase to a recovery in the housing industry as more home builders are back building homes.

There are two major factors further influencing real estate markets: demographics and student debt. The Baby Boomers will have a major impact on the demand for retail and residential real estate as they eventually sell their single family homes and seek specialized housing types that do not currently exist. Also, the amount of student debt now exceeds total consumer debt. This debt condition will be a drag on home sales until repaid and thereby freeing those dollars for a home purchase.


The Masters in Real Estate Program at the University of Illinois at Chicago is a multidisciplinary program which trains graduates to understand and solve the evolving challenges of successful real estate investment and development.