If you look back in history and go all the way back to biblical times, there are two main ways people accumulate wealth. It is the acquisition of precious metals or real estate. While the asset basket of precious metals has evolved, real estate as a reservoir of wealth has remained largely unchanged.
Today, owning a home or other property is a dream for most Americans. Owning a home is now an integral part of the classics. american dream.
From rural farmhouses to urban high-rise condominiums, Americans have parked part or nearly all of their homes for generations. wealth at their home.
Given the emotional significance of the American dream, the housing market has received a lot of media attention. Having covered the industry for decades, I’ve sat front row in several economic cycles. From the savings and loan crisis of the 1980s to the global financial crisis of 2008, real estate, especially housing, has seen its ups and downs.
With that historical perspective and today’s difficult economic situation in mind, I’m asking myself (often on live TV) if I’m headed for another crash. As a history student, I compare the current situation to past boom-bust cycles that I have witnessed. If I’ve learned anything about history, it’s that it repeats itself. So what better place than history to find answers about the future?
Stagflation period in the 1970s and 1980s
For those of us who can remember, the current economic situation is eerily 70’s-early 80’s environment — Soaring gas prices, record inflation and rising interest rates. But the big difference between then and now is unemployment.most Jimmy Carter Administrationthe unemployment rate was just under 8%, todaybelow 4%.
To combat runaway inflation at the time, former Federal Reserve Chairman Paul Volcker aggressively raised the federal funds rate. pointed A peak of 20% was recorded in June 1981. The Fed’s hawkish actions were designed to combat inflation by effectively putting the US economy into a self-induced coma. Some would think that a stagnant economy combined with high interest rates (and mortgage rates) would cool the housing market. Surprisingly, while the movement of housing conversion is slowing down, median house price It rose significantly from $38,100 in the first quarter of 1975 to $78,200 in the first quarter of 1984. Inflation played a role in this as the cost of materials skyrocketed, but the economics of supply and demand for housing were the main drivers of price increases.When Population growth from the baby boom increase in demand Housing in a time when inflation made housing more expensive to build.
Housing Boom and Financial Crisis
When analyzing today’s housing market, it’s inevitable to look in the rear-view mirror for the boom-bust cycles of the last 20 years. Note that not all price spikes are the same. Many factors contribute to rising house prices. Some are basic concepts of the Econ 101, such as high demand in the face of low supply.
However, in 2008, the housing market exploded due to external factors. creditMortgage underwriting standards have deteriorated, allowing anyone to take out a loan to buy a home. This “free money” artificially boosted demand, and prices continued to rise. It is worth noting that during this period the existing housing inventory exceeded his 14 months supply. today Only 3 months.
how are you now?
home loan interest rate nearly doubled the past year. Inflation hits the economy hard And in some ways we are already in recession. Given the situation, one might think: This must be a bad sign for housingIt looks like a logical idea at first glance, but it’s a conclusion that I’m not jumping at.
Hey, let’s say we’re freshmen in college. In between playing Pong (the video game of my time, or the Red Solo Cup variety of today), pretend you’re studying history and economics.
As mentioned above, today’s residential environment feels like the 70’s and early 80’s. Remember, house prices were rising at the time (history). why? Fundamental Supply and Demand (Economics).
Currently there is an accumulation deficit Between household formation and 5.8 million housing starts. In other words, the demand for housing far exceeds the supply. Additionally, supply constraints are expected to continue as inflation makes it more difficult for builders to build.
Given history and similar economic conditions 40 years ago, it’s safe to say that house prices could rise again. The pace of price gains will likely slow somewhat as the economy slows, but I personally don’t see a crash imminent – it will likely experience an elusive soft landing.
Mitch Roschelle is a founding partner of Macro Trends Advisors LLC, a real estate investment and macro market strategy firm. In addition, Mitch is an adjunct faculty member of the Burnham Moore Real Estate Center at the University of San Diego.
The views expressed in this article are those of the author and do not necessarily represent those of The Daily Wire.