Events since the housing crisis of 2008 have had significant effects on the U.S. housing market. Economists study statistics and put on their “storytelling hats” to find someone who will believe their stories of economic recovery.
Few objective observers would interpret actual data, which includes mortgage applications and housing starts, through the rose-colored glasses these people wear. As an economic indicator, housing once predicted growth and shrinkage in other areas of the U.S. economy. Today, housing is used as the proverbial ping pong ball to keep everyone distracted from the reality in which we all live.
Churning in the market from 2000 to 2006
Access to mortgage loans caused excess volume in the sales of houses across the nation. Applicants were able to augment the facts in order to receive mortgage loans under lenient approval rules. A cycle was established where frequent sales of houses in a given area would cause the prices to rise artificially.
Owners would stay in the house for a short time, increase the sales price and find another house. Each purchase made more money for the bankers and created a false impression in the markets.
Inventory of existing homes
Increases in the number of available homes across the country created a smorgasbord. High prices were present when houses were plentiful. This fact highlights the ways in which the “churn” created movement without demand.
- 1971 – 2 million houses
- 1976 – 3 million houses
- 1978 – 4 million houses
- 1998 – 5 million houses
- 2003 – 6 million houses
- 2004 – 7 million houses
- 2010 – 5.3 million houses
The height of the price bubble occurred during 2003 and 2004. Unemployment rates across the nation were below 5 percent. Good jobs supported the career aspirations of hardworking people with big dreams, and the bankers jumped on the opportunity to get very wealthy.
“High” sales volume in 2007 and 2009
Some economists are attempting to project home sales into the future using the statistics from the year preceding and following the 2008 housing crisis. This type of prediction allows any economist to write a story that no one can disprove. Today, unemployment rates are at record highs.
Part-time jobs have replaced full-time work that used to provide sufficient income to support a family. All of these facts mean that people are no longer buying houses. Housing sales follow recovery in other important economic indicators. Few people can qualify to buy a house without proof of steady, full-time employment.
Decrease in household formation
Recent housing statistics reveal that the number of mortgage applications have dropped to levels not seen in more than 20 years. College graduates are unable to find career-level jobs that would enable them to move into even a small apartment except for mom’s basement.
In the past, new households required a place to live. Without new households, the demand for housing will continue to decline in the coming decade. Employers refuse to hire for countless reasons, which include overwhelming government regulations. Anyone with a basement is fair game.
Significant inventory of bank-owned houses
In the aftermath of the 2008 housing crisis, thousands of people endured the financial nightmare of foreclosure. Banks acquired the houses that were financed through their shaky rules, and now would have to be sold at a loss. Trends in the sales of these houses have created artificial sales activity in the housing market that blurs the predictions for future years.
Investors have purchased many of these houses for rental properties, which might house their grown children. Some of these houses will not be sold for many years in the future.
Fewer people are relocating
In the coming decade, fewer houses will be sold and purchased since people are not relocating across town, to new cities or new states. More people than ever have discovered the flexibility of working from a home office or establishing unique businesses. Remaining in the existing house is the new trend in the U.S. housing market.
Extreme demand for affordable housing
As employment evolves into a part-time job market, people are unable to maintain the standard of living that created a thriving housing market. Rental properties are more prevalent than ever in many communities. Owners will transform the existing house into a rental instead of selling the house for less.
In addition, taxing authorities will reevaluate the property tax schedules for rental properties to compensate for the new trends in home ownership.
In the coming decade, economists can make up virtually any story based on the ever-shifting statistics from all of these factors. An entire decade of significant economic events negates the ability to create valid comparisons.
In many economic discussions, the decade from 2000 to 2010 is considered “the lost decade” in the housing market. The next 10 years will establish a new set of standards for housing construction, sales and ownership.