Where To From Here?

Talk of housing bubbles and real estate speculator excess has reached such a fever pitch, that, whether it happens this year or next, it is clear that the excitement, new-found wealth, and pure delusional joy that today's real estate market has engendered will soon be gone.

The best case scenario - that prices stabilize or that increases revert to the mean - will cause the mania to subside, many speculators will head for the exits, and the real estate market will return to a more normal condition.

People will then take stock of where this has left them and ask "Where to from here?"

It looked like the world was coming to an end in 2001, but the combination of monetary policy, lending standards, two wars, and an election seem to have turned a fearful nation into a vast army of real estate entrepreneurs. Rising home equity, refinancing, cash outs, investment real estate, vacation homes, "flipping", and more rising home equity ... if you owned a home, you couldn't help but notice that your bottom line, your net worth, had improved dramatically.

You didn't have to do a thing - just owning a home made you wealthy!


Homeowners "tapped" their equity to go out and buy nice things - mostly things made in Asia ... things they wouldn't have bought a few years prior. Remember the "wealth effect" from the rise in equities in the 1990s? Combine rising home prices with home equity lines of credit and you get the "wealth effect on steroids".

During the last couple years, we've finally been creating some new jobs - still barely enough to keep up with the rising population. Disturbingly though, a very high percentage of the new jobs are related to real estate - around 50% in the most bubbly areas.

Lots of jobs for construction workers, real estate agents, loan specialists, escrow agents, and title insurers. To that add service jobs at Wal-Mart and Home Depot, landscapers, interior decorators, remodelers, and most importantly - granite countertop installers.

We can't seem to make cars anymore - not too many jobs there, except for the finance departments. GM and Ford appear more and more like mortally wounded old beasts ready to land with a loud thud and let the government clean up their retirement messes. No longer will auto manufacturing jobs be handed down from generation to generation.

Meanwhile, in Asia, lots of jobs were being created. Factory jobs, infrastructure jobs, and construction jobs for towering office buildings, public facilities, roads, and schools - booming economies with dramatic growth. Chinese factories humming to produce goods to ship to America, Indian software and service companies doing more and more business with American companies.

American corporate culture is such that most jobs that can be moved overseas to achieve a competitive advantage, will be moved overseas - the world is now flat, as Thomas Friedman writes.

Globalization is a fact of life - deal with it.

Five or ten years ago, when it became clear that low paying manufacturing jobs were leaving this country and not coming back, conventional wisdom was that we are the "innovators" - it's OK to export these low-wage, low-skill jobs because that's how globalization works.

They get the menial jobs, we innovate and create higher paying jobs here at home to replace them.

So, over the last few years, aside from creative home loans, where is the innovation?

And where are the higher paying jobs?

When the real estate boom finally ends, will we be left with anything other than a pile of debt and a bunch of granite countertops?