Let me start with some historical perspective. In addition to my day job on behalf of PwC, I serve as the co-publisher of “Emerging Trends in Real Estate,” for the past 39 years one of the most widely-read forecasts in the real estate industry. Each year we ask market participants, “What are the prospects for profitability for the upcoming year?” Reflecting on responses for nearly four decades provides an interesting basis for analysis.

Let’s look back to 2007. At that time the real estate market was on fire, and real estate investors were bullish about the year ahead. In fact, over 80% felt that 2007 would be another banner year.  But then came the Global Financial Crisis, and the following year real estate investors realized their glasses may have been rose-colored. While in 2007, a slight 1.6% felt that prospects were poor, in 2008 that negative sentiment jumped to more than 22%. What a difference a year makes.

Ok, you ask, so how do these folks feel a decade later? In a word, optimistic. The sentiment remains strong, with 80% of those surveyed seeing the prospects for the upcoming year as “good” or better yet “excellent.”

Now, keep in mind these surveys represent the collective views of more than 1,500 real estate folks, compiled in the late summer and early fall of the previous year. In other words, the outlook for 2018 was captured from July to September of 2017.

Since 2007 had a rosy outlook, clearly, based upon their seemingly blind optimism (hindsight is always 20/20), the real estate industry did not see the Financial Crisis coming.  As a result, when I first looked at the 2017 outlook results, I paused. Ten years later, and results look the same as they did before the Financial Crisis. Thankfully, it’s now a year later and optimism remains strong.

Being an impatient sort, I couldn’t wait for 2019’s survey results — especially with all that has changed in the market, not to mention tax reform, stock market volatility and so on. So we went back to the group with our thermometer, to take their temperature again.

The first thing we needed to know, with all the change in the market, has the industry revised its outlook? Interestingly, 65% indicated that they have not. Of the 35% who feel their outlook has changed, an overwhelming 60% have upgraded their outlook, while 40% downgraded it.  While those numbers may be interesting, we need to know why.

Like the famous (or infamous) quote goes, “It’s the economy stupid,” the big driver of the change for the good and the bad is the economy.  While economic growth is the primary cause for improved optimism, at the same time, the improving economy is the catalyst for rising interest rates. And in the eyes of those with less optimism, higher interest rates could chill the real estate market.

When one reflects on the past several recessions, the real estate industry was at the center of two of them, namely, the Savings and Loan Crisis of the late 1980’s and the Global Financial Crisis. While one can never predict what might cause the next bubble to burst, the glasses worn by real estate market participants are not as rose-colored as they were a decade ago.

Mitch is a partner at PwC, and currently serves as one of its Business Development Leaders. He was a founder of PwC’s Real Estate Advisory Practice, and has over 30 years of experience serving a wide array of real estate investors. A widely-recognized expert on real estate, as well as capital markets, the retail industry, and the economy, Mitch is a sought-after speaker and guest commentator.  He appears regularly on Bloomberg News, and the Fox Business Network, where he serves as a panelist of one of its top-rated shows, Mornings with Maria.