In the past, from the 19th century throughout the founding of the Fed in 1912, and present times until about 2000, U.S. economic cycles were determined by the housing cycle. Big booms and busts they were, and if not nearly predictable, certainly a recurrent pattern.
The latest housing cycle: No cycle in the slightest degree
Booms contributed to over-building, lenders without any losses became lazy and happy to lend more and then rates rose and brought about the inevitable bust. Then in the ensuing recessions, rates fell and housing was the first sector to awaken and recover.
We repeated that very same pattern ten times immediately after 1945, even though the Fed moderated each and every one, usually sawing the top off of the booms to lessen each landing before they became dangerous.
We started to get out of pattern in the 2001-2002 recession – the first one without having a housing bust. The technology and stock market busts were so powerful that they threatened deflation, therefore the Fed pushed down on rates and kept them there so housing would bring us out. And it did.
Then – apologies for dredging up the memory – the Fed and all other regulators neglected to notice an epic episode of piracy on Wall Street that produced a mountain of poor credit. Just about 50 % of the mountain was mortgages, however it was enough to create a super-boom along with a super-duper bust.
However that was a years ago. The bust began in 2005; most foreclosures were worked off by 2012 and home prices have risen since that time, eerily so. On a national basis, home prices have risen approximately 6% each and every year since, neither accelerating nor flattening. Not by accident, that 6% annual is merely a hair larger than the pre-inflation rate of income development in cites. Cities are where the action is today.
Over the last half-dozen years of stability, new home sales are actually just less than 600,000 annually, the centerline of expansions going back 50 years. Thin numerically, given our much larger population today, however the thin supply has brought neither a price boom nor an oversupply.
Sales of existing homes have ticked along at 5.5 million annually, so steady the results really aren’t worth reporting. And disparate sources have similar findings: The National Association of Realtors “pending sales” are already non-news bland. Same for the Mortgage Bankers Association reports of loan applications. Just this year, new mortgage lending has risen slightly above foreclosures of old loans, however the total outstanding is $1 trillion beneath the Bubble total in 2007.
Why? Two forces without precedent outweigh everything else combined.
The first one is clear-cut: post-Bubble regulatory changes help make it impossible to get a bad-loan boom going. Individuals who should be aware of better argue against Dodd-Frank and regulation in general. Dodd-Frank does have its weaknesses, however the U.S. supply of mortgage credit today is the finest quality in U.S. history. Don’t mess with that.
The second force is also without U.S. precedent. 60% of U.S. counties now suffer out-migration by residents – virtually all rural, headed to cities where the technology critical mass burns so brightly.
Fifteen years ago the out-migration fraction was merely 45%, and without the rural concentration. We are now conditioned to migration west to suburbs and to the Sunbelt. Some of that will continue, but overwhelmed by the economic drive to become close to a city as well as its jobs and future.
In real estate terms, this migration indicates that we will be switching from development of new land to the much slower and even more expensive redevelopment of existing uses.
There you go. No credit boom, no building boom, no cycle.
Ready to find your new home? Nick & Cindy Davis with RE/MAX Premier Group are here to assist you. We are always a just a click here away or call to 813-300-7116