Early signs indicate at least some housing markets are cooling off. Homes for sale in Seattle aren’t seeing as much intense bidding as a few months ago. Bidding wars are also becoming rare in Portland. The Case-Shiller index says that markets are weakening in other regions as well.
Unlike the 2008 financial crash, housing markets today appear to be the result of, not the cause of, an approaching recession. That recession, in turn, is likely the result of Trump’s trade war. The stock market, which boomed after Trump’s election, has been declining for the last three months as the trade war has increased the cost of manufacturing and consumer goods.
A major problem with relying on government planning for things like housing and transportation is that planning is too slow to keep up with the real world. One obvious sign of this is how road projects that used to take a few months to build now require years and even decades for planning and construction. For housing, the problem is even worse.
Portland, for example, is modestly expanding its urban-growth boundary with the expectation that it will allow for more than 9,000 new homes. The city is also talking about rezoning single-family neighborhoods to allow construction of many thousand more units of housing.
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If all goes as planned, all of this new housing will come on line just as the housing market is dropping. The result will be even bigger declines in housing prices. In other words, planning not only makes housing expensive, it makes prices more volatile. This was clear in the 2008 recession, when prices in growth-managed markets fell by up to 50 percent while prices in relatively free markets fell by less than 10 percent.
This makes housing in growth-managed markets a risky investment because you can’t know if you are buying when the market is down and you can’t insure that you are ready to sell when the market is up. People in volatile markets are much more likely to find themselves under water — which means they owe more on the house than the house is currently worth — which makes it difficult for people to relocate to a place where there might be more jobs.
All of these problems are good reasons to end growth management. Unfortunately, too many planners simply deny that their plans are making housing expensive and volatile and too many politicians believe them. This is going to hurt both individual families and the national economy in the long run.
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As bad an example of economic policy as a think Trump’s tariffs are, I would be hesitant to ascribe a looming recession (assuming there is one) to them. There just isn’t enough evidence on earnings and firm profitability yet to confidently link them to changes in trade policy. In terms of predicting a recession, you’d probably have to provide evidence of several quarters’ (if not years’) worth of slowing growth to substantiate that.
I think “war” is too harsh a term. Trade “skirmish” is probably more accurate as NAFTA has been renegotiated, China is is backing down, and Europe becomes increasingly irrelevant on the world stage.
Besides, real GDP has been on a tear for the past nine years. We’re due for a pullback.
My classic example of the problems investors face in these urban infill projects was from years ago. A developer had a project for some land on the edge of a historic district. It took them 10 years to get the point where they had built these things, 10 years. No wonder they were building condos on the high end, they didn’t stand a chance of making a profit selling anything less.
The amount of back and forth and negotiating with the city to get their stamps of approval was absolutely byzantine. And we’ve become so accustomed to it we don’t realize how B.S.C. it is.
The trade war has obviously had an effect.
However, the federal reserve raising rates and tightening money has much more of an effect.