A decade has passed since a massive U.S. housing bubble triggered the 2008 financial crisis. Could another housing bubble be brewing?

We asked James D. Shilling, the George L. Ruff Endowed Chair in Real Estate Studies at DePaul University, who researches housing and real estate investment trends. A prolific scholar and sought-after speaker at academic and business conferences around the world, Shilling recently discussed the prospect of another housing bubble at the World Knowledge Forum in Seoul, South Korea. Here, he discusses his findings and gives his take on other real estate trends.

What trends are affecting the current housing market?

Global economic growth slowed in late 2018 and early 2019. One factor negatively affecting global growth has been the down cycle in technology (for example, a low demand for iPhones). Another factor has been the slowdown in credit in China and the trade conflicts with the United States. Europe—and, more specifically, Germany, the world’s leading exporter by most measures—has also been affected by trade tensions. There also is uncertainty over politics in Europe (for example, Brexit). Finally, that growth in the United States slowed is no surprise. The U.S. grew quite quickly in the first half of 2018 on the back of a large fiscal stimulus, and the effects of that stimulus are starting to wear off.

These factors generally caused most housing markets worldwide to cool in late 2018 and early 2019. Nevertheless, lower 30-year fixed-rate mortgage rates in the U.S. (which have recently dropped to 4.2%, a drop of more than 0.75% since late 2018) are likely to lure many buyers back into housing markets in the U.S. for the remainder of the year.

Are we due for another housing bubble?

If you look at what happened during the last crisis, housing prices in real terms increased about 70 percent from 2002 to 2008. Then they fell by 30 percent from about 2008 to 2011. If you apply that same criteria to housing prices today, Beijing, Shanghai, Hong Kong and San Francisco all meet that criteria for a bubble—real housing prices have grown by more than 70 percent in those markets since 2008. And markets on the brink include London, Los Angeles, Zurich and Boston. Interestingly enough, however, Chicago and New York City have been laggards in terms of real housing prices. In New York City, the high end of the market has really declined significantly over the last 12 to 18 months.

So, the data presents a picture that in some places prices are going through the roof, other places are on the brink, and in still other places, such as Chicago, we aren’t seeing that big an increase. The short answer is that it doesn’t look like a bubble will cause a crisis because housing prices are not affecting all places in the same way.

On top of that, in order to have a bubble, there also needs to be some sort of speculation taking place. If you go back 2002-2008, we saw a lot of people doing that. People bought homes and they didn’t do anything with them – they just kept them vacant and then tried to flip them. We saw that in Chicago and almost everywhere. But the only place where you are seeing that now is in Asia. In places like South Korea, about 20 percent of households are looking to flip.

We’re also seeing very little new housing starts (new residential construction projects) and existing home sales here in the Midwest as well as the East and West coasts. People have low interest rates. Four or five years ago the rates were 2.75 to 3%, and now it’s about 5%. So people are thinking about whether they want to give up their favorable financing to take on something new. We’re starting to see more improvements to existing homes instead.

What other factors make the current housing market different?

While many families were struggling to make their mortgage payments just before the Great Recession, debt to income levels and delinquency rates are currently much lower than they were prior to the bust. Households are holding significantly less mortgage debt and are making their monthly mortgage payments at a much higher rate than during the Great Recession.

Why are housing prices at bubble level in some cities but not in others, like Chicago?

I think the answer involves economics in general and where the shared economy and technology impact the economy. If you look at places like San Francisco, which is driven by technology, for people in the top 10 to 20th percentile, the ratio of housing prices to incomes is about 2 to 2.5 times. For that segment of the population, the prices are pretty reasonable. For everybody else, it’s hugely unaffordable. Then you look at Chicago. We haven’t benefited as much as San Francisco in the technology-driven economy, and so we won’t necessarily expect to see the huge prices we’ve seen in places like San Francisco, Boston and Austin, or in Hong Kong, Beijing and Shanghai.

The issue of housing affordability speaks to the work of the Institute for Housing Studies​ at DePaul. As much as we thought affordable housing was an issue in the 2000s, going forward it’s going to be doubly important because income inequality is not going away. It’s tough to put technology back in the bottle and reverse these trends.

How might things have changed in Chicago if the city had been chosen for Amazon’s second headquarters?

Having Amazon located in the city would have been both a blessing and a curse. The blessing is that it would have created a ton of jobs in Chicago. The curse is that it would have moved us to become more like San Francisco – higher prices on housing overall because the incoming workforce would have lowered supply and raised housing prices.

Read the latest report from the Institute for Housing Studies on the State of Rental Housing

By Robin Florzak

Whether you are a recent graduate about to enter the job market or an alumnus looking for a raise or new employment opportunities, one of the most important skills you need to master is negotiation. We asked Driehaus College of Business Associate Professor of Management Charles E. Naquin, an organizational behaviorist and co-author of “The Essentials of Job Negotiations: Proven Strategies for Getting What You Want,” for advice that will tip the job negotiation scale in your favor.

How should I respond when they ask how much I expect to make?

Generally speaking, don’t answer this question. Instead, you should respectfully deflect. A key word here is respectfully. A job negotiation should never be antagonistic. However, you do want to deflect because answering this question typically never helps you and can actually hurt you. So, don’t play that game—instead, respectfully deflect. Here are some examples:

“I’m getting my MBA so my prior salary doesn’t matter.”
“I’m switching industries so my prior salary should not be considered.”
“What I’m making does not matter so much, what I would like is to be paid competitively to my peers.”

You get the picture—respectfully deflect and have a few responses in your back pocket. This is a question you will likely have to address on multiple occasions during the same interaction.

Will I offend my future boss/employer because I am negotiating the job offer?

That’s a myth. Keep it respectful, not antagonistic, and you should be fine. In fact, it is more likely that your future employer will respect you even more if you negotiate because you are obviously business savvy.

What do employers dislike about job negotiations?

Most employers making job offers expect you to negotiate and many will actually offer a starting salary lower than what they expect to actually pay you because they anticipate you’ll negotiate it to a higher level. Therefore, employers typically expect negotiations and they don’t dislike them. What they DO tend to dislike are protracted job negotiations (so keep it short) or someone who pits one job offer against another (so don’t do that). ​

What is the biggest error that people make in job negotiations?

I would say the biggest error I see in job negotiations from a candidate’s perspective is negotiating before you even have an offer in hand. There are a number of reasons why you do not want to start negotiating before you get a written offer. Among them is that a verbal offer is easy to withdraw, while a written offer is not. In addition, once you get a written offer, the nature of the interaction changes — they (your potential employer) switch from “who should I make an offer to” to “how do we get you to sign.”

What is the NEXT biggest error you see in job negotiations?

The second biggest mistake is negotiating the job package over email (or worse yet, texting) when face-to-face is a viable option. Arranging a face-to-face meeting is often more work than emailing (or texting), but the dynamics in face-to-face job negotiations tend to work to your advantage while the dynamics of email (or texting) tend to work to your disadvantage — again, this is true in job negotiations (and is not true for all negotiations).

There are a number of reasons why this is the case. A person will have a harder time declining your requests when they are face-to-face with you than if they were looking at your requests on a computer screen. In addition, it sends the message that you place a high priority on this job opportunity if you take the time to meet face-to-face.

I once had a student fly from Chicago to Kansas City for what ended up being a 15-minute conversation about a job package, and ended up with several thousand dollars more in salary. Would this have happened over the phone? Maybe, but a jump in base salary in the thousands paid for that trip many times over and increased the odds of getting a favorable response. That investment in time and airfare for a face-to-face meeting was a worthy investment in my mind.

Offer to take your potential employer for a cup of coffee (as an example) and have a face-to-face conversation about the job offer. Negotiating job packages face-to-face is to your advantage, so take the time to set up a meeting.

What is your advice for asking for a raise?

That is a common question when I talk to alumni. People who have been working for a number of years may come to realize they are getting paid less than the market wage. Naturally, they want to know how to get a raise—at least get paid what the going market wage is. Is there a way to do this? Well, let me be upfront here — negotiating a new job offer is much easier than getting a raise internally in an organization. Internally there are many restrictions — whether it is administrative (e.g., caps on raises) or political (e.g., your boss does not like you). Here is the best strategy to take, in the sense that it is generally the one that is most likely to work — change companies. When you switch companies your salary tends to be reset to market wage.

What if you don’t want to change companies, do you have advice on getting a raise?

That is a complex issue that cannot be covered properly in a forum like this Q&A, but there are a few things you should know that can be helpful. First, for you to get a big raise you should make sure you are on good terms with your boss. If not, forget it — look for another position, whether internal or external. Second, figure out where you are salary wise in the company. Often companies will have a range of salaries for each level, often called bands. Find out where you are in your band. This knowledge will help when you talk with your boss about what it takes move up in the band, or if you are at the top of the band, discuss with your boss what it will take to go to the next level and higher band.

By Andrew Zamorski