In a statement last year, NAR chief economist Lawrence Yun discussed the housing market’s recovery since the Great Recession (Realtors Chief Economist Reflects on Past Recession, What’s Ahead for Housing; nar.realtor; August 28, 2018). Citing increasing homeownership rates and addressing the recent home sale slowdown, Dr. Yun believes that concerns about a significant housing slump are unsubstantiated.
Dr. Yun is not the only one pointing to affordability (home prices and mortgage rates) and lack of home sale inventory as causes of market disruptions. But his statement is almost trite: “…even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory and accompanying unsustainable home price increases…”
The housing market, like the overall economy, goes through cycles of boom and bust. It’s been about eleven years since the last recession, and many are saying we’re overdue for another one. But if the economic cycles, as described in 1876 by economist Henry George and modernized by Glenn R. Mueller, accurately include recovery, expansion, hypersupply and recession, there is no clear phase to describe recent housing activity. Instead, the housing market has been undergoing mini-cycles.
Most understand the concept of the broad economic boom and bust cycle. But most are unaware of the mini-cycle of short-term growth and slowdown. Unlike a recession, the mini-cycle doesn’t wreak widespread havoc on the economy. Since 2013, the housing market has undergone at least three mini-cycles of growth.
These cycles peaked with record sales volumes, only to be set back by months of sluggish home sales. The causes of the mini-cycles are debatable and, like a recession, clear in hindsight. Of course, Dr. Yun and other industry experts are likely to be correct saying that home prices (affordability) and inventory are to blame. However, there may be other reasons worth exploring as well.
Micro-economic factors are playing a large role in the housing market mini-cycle. Take, for example, the increase in employee telecommuting.
There is abundant research pointing to how telecommuting has affected the commercial real estate market. These studies point to increased office space vacancies due telecommuting.
Companies are downsizing offices because of the reduced need for space as employees are working from home. This trend is recognizable in real estate brokerages. Real estate office spaces are shrinking as the industry becomes increasingly “virtual.”
Telecommuting is also impacting home sales. According to Global Workplace Analytics (globalworkplaceanalytics.com) “Regular work-at-home, among the non-self-employed population, has grown by 140 percent since 2005, nearly 10x faster than the rest of the workforce or the self-employed.”
Currently, there are about 4.3 million employees that work from home at least half the time. As businesses are increasingly hiring a telecommuting workforce, workers opt to stay in their current residence rather than relocate near their new employer.
Still, many ask if lackluster home sales will lead us into recession? Actually, economic indicators point to a positive home sale season. The Bureau of Labor Statistics (BLS.gov) most recent unemployment statement was 4.0 percent (which included government shutdown stats).
The Consumer Price Index remains stable (the CPI-U was last reported unchanged). Real average hourly earnings were reported to increase 0.2 percent from December to January. And after a three-month decline, the Conference Board (conference-board.org) reported a rebound in the Consumer Confidence Index. Given the winter housing slump, real estate may be on everyone’s mind again in this spring.
Dan Krell is a Realtor® with RE/MAX Success in Potomac, MD. You can access more information at DanKrell.com