The Expert: Economic Impact on Market Intelligence

As the recession continues to worsen, it is time for real estate investors to consider its impact on one of their most fundamental tools: market-level demographics.Typically, investors view this data either as a commodity—the quicker and cheaper, the better—or as a requirement for every financial package. In these volatile times, investors need to look a little deeper, gauging data on the long and short of how economic conditions like rising unemployment and foreclosures can impact the accuracy of demographic data.Three million jobs were lost in 2008, and some experts predict that another 1 million or more will disappear this year. Thus, questions abound about how the unemployment crisis is affecting household-income estimates. It undoubtedly impacts them but not as dramatically as we might think, given that producing accurate household-income estimates that are based on reliable trends takes time. And foreclosure data forces investors to consider the migration patterns of these displaced households on population estimates and household projections.Migration data suggests that most households will resettle in and around their original neighborhoods, owing mainly to personal and/or educational ties to that community. Bottom line: Although the foreclosure rates are alarming, the number of foreclosed houses within still represents a small number of the total within most U.S. neighborhoods, reducing the likelihood of dramatic swings in the yearly household estimates. So, while tracking foreclosures and job loss is critical to any estimating process, until we see a large number of homes in foreclosure or significant unemployment concentrated within a single neighborhood, the full impact of foreclosures and unemployment on neighborhood estimates will not be as significant as one might expect.Though accurate estimates demand a diligent eye on both troubling trends, let’s hope their incidence and frequency will soon bottom out and start turning around.