It’s a good idea to keep your eye on the ball – and the whole field you’re playing on, as well.
For the past few years, many of us have been watching and waiting for our country’s economy to stabilize. Various reports – usually from the government – are crafted to give the impression that there are more jobs now than last year, and for those who have managed to hold onto their homes, that the value of real estate is beginning to increase. On some days, we are tempted to think the day-in and day-out struggle to make ends meet might be lightening up in the near future – that our family may be able to earn a little more at work or through the improved performance of savings and investments.
And here are two assumptions in this hope for recovery which bear watching closely: the value of our homes and the money we can earn. Recently, a house in my Cartersville neighborhood – which was valued at $150,000 two years ago – was sold for $25,000. This was more than the sad result of an “underwater” house payment. It was also a bank’s decision calculated to achieve some financial return and to end their responsibility for this troubled asset – which is an ominous choice for those of us hanging on for a better day.
Beyond the sense of security that owning their own home gives to families, the stable value of houses and real estate is a base seed for the community. Choices like this can have a domino effect. Reasonable property taxes pay for city and county services, and a decrease in property values also means that communities cannot afford to provide the same level of services, without running into debt. How long will that continue before they figure out it’s not going to work? Local government can’t afford the health coverage, gas costs, etc. for its firefighters and sheriff’s deputies, as well as the cost of keeping schools open. And if we lose this housing value base, not only does the community suffer in the short term – what if it becomes cheaper to re-build that base somewhere else and the community we’ve put down roots in will not recover its former economic health?
And consider for a moment that a new car costs an average of $25,000. If given the option of buying a new car or a home, can we assume that most people would probably choose to buy the house? So where does that leave the car manufacturer which still needs to sell the product and pay their employees? In such a situation, they will need to either reduce the cost of the car to equal the market, or the company will go out of business – and its jobs will go with it. For those who’ve survived the plague of collapsing real estate values, they may find that the next sinkhole is the labor market.
Where the playing field itself – the underlying assumption for these current situations – may be changing is in relation to a population trend: the Baby Boomer generation is moving out of their family homes and into retirement housing, and leaving behind a large inventory of homes. This presents both challenges and opportunities for those who can see them and are prepared to act on them.
The Baby Boomer generation is estimated to be larger than that of the current young adult population by a ratio of 4:1. With more family homes being vacated, this could result in a surplus of homes getting turned over to the banks. How long this trend will last will be based on how many people take advantage of buying homes – short sale or otherwise – from the banks with a surplus inventory. And who is overseeing this transition? Are those we look to for leadership the same individuals who are calculating their own security as they head for retirement, leaving us with the remnant of their equation?
Leadership today has to be able to look at this with a very wide view. Recognizing these pitfalls is not very easy. Will it become a matter of whether or not to allow the free market and its surplus homes to drive in the expected direction, or to pursue another avenue to enhance the free market?
The answer is not more government programs or interventions in the operation of a free market. Markets have a funny way of making their own decisions. Recently we discovered the bailout which produced the Chevy Volt has created this century’s version of the Edsel. We as taxpayers paid for that 21st century Edsel. Perhaps the most important lesson we’ve received in the past 3 years is that the administration cannot pick and choose the markets. They have failed at dictating supply and demand. The answer lies in the freedom that capitalism gives to each of us to work hard to achieve our own full potential, rather than the “fair” portion that a government might assign to each of us.
Instead of waiting for the negative consequences and then reacting – or expecting the government to react for us – leaders can instead recognize the opportunities, such as creating and adapting retirement housing and health and enrichment services focused on that retiring generation. Good leadership will recognize the needs of what will be an extremely competitive market: not only strategizing the handed-down resources for the next wave in supply and demand – the housing, wages, and businesses the Baby Boomers will be selling – but also the operational needs of the next generation that will take the reins as they retire. This next generation has energy, talent, and skills for a new world that is developing from the passing generation. And the next generation’s initiative will be based on these challenging markets.
The leaders that recognize the terrain of the new playing field, and how to guide their communities in it, will be able to take advantage of opportunities in what may appear as chaos – both in the local economy and politically. How we take advantage of these opportunities in chaos is how we will be judged as a generation. In order to overcome the gaps and voids in the changing market, confident and capable leaders will need to be in place. Find these leaders – and then hold on. Be About It.