Rose Cottage Ltd

You’ve no doubt heard that when buying a home, “location, location, location” is a prime consideration. It’s important for property values, initial cost, school districts, neighborhood ambiance, and a host of other factors.

But these days, headlines like the one below are a more important barometer of what’s going on in real estate:

Glaxo lays off 900 in Research Triangle Park.

For those who don’t know, “Glaxo” is Glaxo Smith Kline, a very large pharmaceutical company and “Research Triangle Park” is also known as RTP – location of some of the largest employers in Raleigh, North Carolina. This headline was in our local paper earlier this week.

Some of these people, the article stated, will probably be employed by another company in RTP who works with some of Glaxo’s products. So if say 40 people move to the new company they will be okay, but what about the rest? That still leaves 860 (I’m just making up the numbers here) families with their main source of income – gone. Three weeks before Christmas.

What does this have to do with real estate? Plenty. Many of these people have or had 6-figure incomes. They have large houses – many with large mortgage payments attached. Will they hold on or will they default? And how many? No one knows for sure. How many will have to pack up their families and leave to (hopefully) find replacement income? No one knows.

Some might think that since interest rates are being kept artificially low – allegedly to stimulate the market – there will be plenty of buyers for houses that suddenly jump on the market. In some instances – maybe. But guess what? Raleigh may be a fairly large city, but the ripple effect of a large layoff tends to scare those still employed in the area or the industry and who are paying attention. Bad news really does come in threes – and it has happened before that if one huge employer like Glaxo is having to downsize, other companies are feeling the same pinch and will do the same.

And this is the BS that the US Government is touting in press conferences as “the best economy in years.” Maybe they need to get out of DC and the Federal employment environment a little more often because this situation at Glaxo is a prime example of what this flat economy is doing not only to our citizens, but to real estate. Only when people’s jobs and income are secure (at least the smart ones) do they invest in a home (or even a new business opportunity) which will require their base income to be stable or grow – for decades. Too many of our countrymen are NOT feeling the love and they aren’t buying and they aren’t upgrading.

This Glaxo layoff impacts supply AND demand at the same time. It will force many to sell those large homes to either downsize or leave the area altogether – flooding the market with suddenly vacant homes. And buyers or the “demand” part of the equation? Well if they were looking to buy two months ago and they still have a job at Glaxo, they might have changed their mind about a long-term financial obligation. If they sense more layoffs are on tap – the result is the same. The layoff will also have a ripple effect on local builders, remodelers, landscapers, and anyone else whose business relies on a robust real estate market.

This is not the news only in Raleigh – nor is it the first news like this locally in 2014. There are already MANY houses vacant or in foreclosure – and they are NOT just small homes. Hold on to your hats, we’re in the middle of yet another bumpy ride…