Housing Market Boom and Bust

As you might expect the health of the US housing market is closely tied to the health of the business cycle. At times it is difficult to know which leads or lags the other.

Since the housing market accounts for more than ten percent of economic activity in the US this should not be too surprising.

When the economic is in an expansion period people are feeling more confident, making more money, and buying more houses. When times are good people expect them to be good forever.

However, the housing market boom during the present expansion period is unprecedented and reached a dangerous level of over speculation. Many housing units were sold as investments rather than as a primary residence.

The housing boom was largely caused by the Federal Reserve’s constant expansion of the money supply. The Fed engineered low interest rates which added a lot of fuel to the housing boom.

The housing boom is not sustainable. Nothing goes straight up forever. A tendency of all markets is to return to the mean at some point. After a long period of growth the next housing bust, which is likely now underway, will likely be a major event which will last for a number of years.

Since the performance of the economy is so important to housing and housing is so important to the economy I’ve added a business video feed to this site.

Keep your eye on both the housing market and the economy if you are a real estate housing investor. You need to make sure that you can afford to carry the financial load if housing enters a long term downtrend.

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