According to the U.S. Census, Connecticut is a mirror image of the United States demographically and has about 1 percent of the nation’s population, or about 3.5 million people. This is significant because as goes the nation, so goes Connecticut and sometimes even visa versa. The housing crisis and subsequent economic crash in 2008 was severely felt nationally and very much here at home as well. But it’s almost over. So what happens now?
Let’s take a look and make some projections.
Nationally, it was discovered by the U.S. Federal Housing Administration, that U.S. banks and lending institutions made about 9 million bad housing loans/mortgages in the 10- plus years prior to the crash in 2008. These loans had virtually no chance of being repaid. It would follow that Connecticut’s share of that shameful number would be approximately 90,000 bad loans/mortgages. Gulp. What were we thinking? Were we thinking? This led to tens of thousands of foreclosures here in Connecticut and crippled our housing market for nearly five years.
In 2007, it was estimated by the Federal Deposit Insurance Corp. that there was over $14 trillion in equity in U.S. homes. This equity was cut in half by 2011 to about $7 trillion as the price of houses noise dived, influenced by a crush of unending foreclosures. Older Baby Boomers who were about to retire counted on this money for retirement. Many were suddenly very up-side-down, paying mortgages that were dramatically greater than the market value of their homes. Boomers that were fortunate enough to own their homes outright or ones that had small mortgages could not access their reduced equity because houses simply were not selling.
So, what did they do? They postponed retirement. This turned off the flow of retirees to warm states like a faucet. It also turned off and shut down the natural migration of older workers who would normally be retiring and leaving their jobs.
Every potential retiree that doesn’t retire creates a problem for a potential entry level worker at the other end of the workforce spectrum. Think of it as everyone moving up a notch as the retiree creates a vacancy. It’s akin to not being able to move into a sold out hotel because guests who were supposed to check out have decided to stay. So what was the net effect of the housing crisis on U.S. unemployment? Overall U.S. unemployment soared to over 8 percent and unemployment at entry level was closer to 50 percent. Young Generation Y kids coming out of school could not find work, at least not in their chosen fields. A lot of kids with degrees waited tables and continued to live at home.
Now the housing crisis is almost over. Attorneys General across the land and the Obama administration are putting heat on the big banks, who had been making a killing putting people out of their homes, to now clear the remaining foreclosures. Phoenix, Tucson and Scottsdale are good examples of what is next for foreclosure plagued housing markets across the United States, and here in Connecticut. Three years ago the Phoenix, Tucson and Scottsdale housing market inventory was made up of a whopping 75 percent of foreclosures. Houses were selling for 40 to 50 percent of their former pre-crisis value. Now that distressed inventory has dried up almost completely and those cities are seeing houses increase in value by 30 to 40 percent annually.
If you take a hard look at the future buyers here in Connecticut the future looks even brighter. Consider that the two largest generations in U.S. history, Baby Boomers and their Generation Y kids, are currently living under one roof. The Generation Y kids are beginning to marry and will start their own households. Fact is we do not have enough houses here in Connecticut or in the United States to handle the new volume. In addition the houses that Generation Y will build will likely be very different than the 6,000-square-foot starter castles favored by their parents. They will tend to be small 1,000 -to-2,000-square- foot self-sustaining homes that are practical and comfortable. Need an image? Think IKEA.
Housing is the economy and the economy is housing. We learned that painful fact in 2008 and 2009. Now housing is poised to rebound with a vengeance and so will Connecticut’s economy. Observe as Home Depot and Lowes’ sales increase. Watch as the “For Sale” signs in your neighborhood begin to disappear. This means the inventory is drying up setting the stage for new construction. This will have a ripple effect on retail. Unemployment will decline precipitously.
There is more. As Boomers retire there is by definition a one for one vacancy created. People are checking out of the hotel. People can now check in. Older Generation Y members (ages 9 to 28) will be sucked into the workforce here in Connecticut like a vacuum. In addition retiring Boomers (aged 49 to 68) will create a management shortage that cannot be filled by the diminutive Generation X (ages 29 to 48) that follows them. Local head hunters and recruiters will have a field day bringing in management talent from around the country and the world.
There is change ahead. It’s all good. Get ready.
Ken Gronbach is a futurist, keynote speaker and author who lives in Haddam.
