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Opinion | The Housing Market Is Bad but Not That Bad

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“In a nutshell, it sucks,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote on Tuesday, referring to a Census Bureau report that U.S. housing construction slowed more sharply than expected in July.

But to whom is it terrible? The decline in home construction is clearly bad for home builders. It’s also bad for buyers who miss the market acceleration, especially for first-time buyers. They had hoped an increase in housing supply would improve affordability, which as of June was the worst since 1989.

But the Federal Reserve is probably less shaken about the slowdown in housing construction. The pullback by the builders is exactly what you would expect from a Fed-designed rate hike. (On Aug. 11, his average rate for a 30-year fixed-rate mortgage was 5.2%, up from 2.9% a year ago. freddie mac, which packages mortgages into securities. )

The Federal Reserve is trying to keep inflation down by slowing economic growth, which is one of the most effective ways. I have written On Monday — to squeeze housing construction. When interest rates rise, both builders and buyers retreat.

Residential investment (what economists call homebuilding) is not the largest segment of the US economy, but it is one of the most volatile, with a disproportionate impact. See the volatility in the chart below. Relatively small recession since December’s most recent peak, which Ian Shepardson called “terrible” Chupchik all the way to the right.

The two big questions right now are how housing starts, or starts, will slow down, and how much that decline will affect the economy as a whole.

Julian Brigden, Founder and Head of Research at Macro Intelligence 2 Partners, an economic research firm based in Vail, Colorado, said: I have written Even before the bearish opening data came out on Monday, its homes are experiencing a bullwhip effect. in December) is what happens when suppliers overreact to shortages and produce lots of things (in this case, houses), and end up with a large excess of inventory.

“We could be facing terrifying inventory cycles that exacerbate economic booms and busts,” Brigden wrote. He said in an interview that the ratio of homes under construction to homes for sale was the highest since his 1974. The Fed said it had no choice but to raise interest rates to keep inflation in check, but the impact on housing would be severe. And it will most likely spill over to other sectors, he said. People who don’t buy houses don’t buy furniture, appliances, or grass seeds.

“There is a very strong correlation between the construction unemployment rate and the overall unemployment rate,” says Brigden. “It could trigger an ugly recession in 2023 that’s far worse than people imagine.”

In Boise, Idaho, the country’s busiest housing market so far this year, companies building subdivisions have halted some work midway through construction, said Steve Martinez, president of Tradewinds General Contracts. It says. He said the impact on his company would be low as they manufacture to order.

The optimism about housing is that while high mortgage rates could contribute to a temporary housing overabundance, it has yet to materialize after years of construction failing to keep up with population growth. It means that demand is building up. Let’s look at the graph again. The pace of construction is slower than in his 1970s, when the United States had a much smaller population. Sure, the ’70s was when the leading edge of the baby boom was buying homes, but that alone isn’t enough to explain the difference in construction rates. Prices are high due to inadequate supply.

“There’s a short-term cyclical effect, and then there’s the long-term question of how much housing is needed,” Robert Dietz, chief economist at the National Association of Home Builders, told me. Are we overbuilt? less, he said.

Taking into account both short-term and long-term factors, he expects single-family construction to fall by at least 10% this year. This is his first calendar year decline since 2011. This is bad, he says, but not by much. As bad as the crash after the real estate bubble began to burst 16 years ago.


Age discrimination in employment still exists. 11 million unfilled jobs in the US economy. University of California, Irvine economist David Neumark and his three other economists created a fake job ad. Some of them may have included unnecessary requirements for administrative assistants, such as the ability to use accounting software systems such as Netsuite, Freshbook, and QuickBooks. The Economist found that such assumptions alienate many older applicants. It could have an equally large impact on the employment of older workers,” they wrote in the National Bureau of Economic Research. working paper.

One caveat: the authors state that such language “should only be used as a potential flag for discriminatory behavior” because some jobs actually require the skills specified in the job ad. increase.


“What a terrifying thing people are. There are so many gauges, dials and registers, but we can only read a few of them, and perhaps they are not accurate.”

— John Steinbeck, Winter of Discontent (1961)


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