Housing Recovery: Be Careful What You Wish For
In the Economist, Ryan Avent isn't so sure that the housing recovery has legs.
In the mid-2000s homeowners anticipated that prices would rise by 10% or more each year. That seems crazy, but that's basically what prices had done from the mid-1990s. Crucially, expectations of rapid appreciation enlarged the set of mortgages that could be originated and sold at a profit. Future liquidity was to some extent contingent on future price appreciation which was assumed based on the recent experience of past price appreciation.
He thinks it will take some time for the confidence to come back and for people to jump into the market again. But the real problem is that the market is reviving just where it is quickest and easiest: in the suburbs. Charles Marohn writes in Strong Towns:
Economically speaking, in combination with finance, the construction industry is the primary manifestation of America's Suburban Experiment. Throughout human history, finance and construction (and government, for that matter) were trailing indicators of productivity; places that created a productive economy would then see demand for more construction and financial activities.
In the six decades of America's Suburban Experiment, we wound up reversing that state of affairs. Now construction, along with finance, drives the economy. Increased demand for housing creates employment opportunities for construction workers as well as thousands of support industries, from manufacturers of porcelain toilets and HVAC systems to all the people selling furnishings at the Pottery Barn.....
As James Howard Kunstler is fond of saying, once you take all of the construction-related jobs out of the American economy, all you have left is brain surgeons and KFC workers.
So no matter how crappy the product and how bad the planning, everybody gets behind and rev's the engine, because housing is the economy. That means more of the same old same old, perhaps with a solar panel on top.