The Broad Perspective: Looking Ahead 10 Years

Frontline (one of my favorite PBS shows) has an excellent program on the government debt. The video is an hour long but extremely informative.

Now, you might be asking: What does government debt have to do with real estate?

Since real estate is affected by the actions of people, and the people are responsible to ultimately pay for the government's debts, the way in which the debt is handled will affect real estate markets across the U.S.

I read a book a couple years ago called The Coming Generational Storm. It was a very dry economics book but dovetails nicely with Frontline's presentation. Here are some thoughts about the next 10 years that will have a significant impact on real estate:

1. Baby Boomers began retiring early in 2008. There are 74 Million baby boomers. This supersized demographic segment of the population will live longer than any generation that has preceeded them. They will draw on government entitlement programs while not working to contribute to the tax base, thus enlarging the national debt.
   
2. Aging people also tend to downsize as they get older. Baby Boomers built most of the McMansions (read: Ivory Homes) that sprouted up in this last housing boom. They will want to shift to smaller housing in the next 10 years.
3. By 2017, our national debt will exceed 100% of our GDP! That hasn't happened since just after World War II...and we aren't in an epic world war right now. Heaven forbid that we find ourselves in one. We couldn't afford to throw dishpans at the opposing army.
   

There are two ways the government pays for its debts:

1. It raises taxes
2. It prints money

Raising taxes is a wet blanket on the economy and that isn't going to happen right now. Printing money is likely how things will get paid in the near term. That creates inflation, and that increases property values. Nevertheless, greatly increased taxes are still inevitable though without butchering popular government spending.

Besides a major tax revolt from my generation in the next 10 years, expect to see substantial property value increases as inflation blows out to pay for all our government spending. Oh, besides your house being worth more, a gallon of milk will cost $20.

Here is a toast to preparing for an eventful decade ahead...clink!