In the recession of the 1980s I witnessed the economic meltdown which was brought on by intense profit taking. Some home sales I tracked back to the early 1970s had sold and resold three times in ten years, each time doubling their previous price. Inflation was double digit and there was no good end in sight.
The Federal Reserve stepped in and tossed a bucket of water on the fire. The result was raging increases in interest caused by shorting the money supply and increasing the prime borrowing rate. If banks could get their hands on any money it came at a very high price. At one point I saw a mortgage interest rate of 24% being offered. After that it settled down to a more sensible 18% where it lingered for some time.
Of course that environment was crippling for the economy and the real estate industry. Homebuilders suffered mightily and many dissolved their companies due to lack of home sales. The lack of demand for new homes caused former building contractors and sub-contractors to seek out any other kind of employment in order to pay monthly bills and just survive.
Fast forward a few years to the late 1980s. Banks started being creative and invented adjustable rate mortgages. The product wasn’t perfect and had some bad down sides, like no lifetime cap, and no rollover adjustment cap. Still though, they made it so people could at least qualify to buy a home. Those loans improved with time and the interest rate edged down toward 10%.
Home sales picked up but since hardly any new homes had been built we were in short supply of product to sell. Builders began to stir, to re-hire workers who had found other jobs. They had to re-tool and get building plans and building permits and find building lots. The process was time consuming and problematic. The estimate at that time was a two year process for builders nation wide to gather their labor forces and catch up to current demand. I’m sure it took them at least that long.
For the past year and a half many builders have been in a mode similar to the early 1980s. They have dissolved their companies and are doing any other jobs they can find in order to survive. Their sub-contractors likewise are no longer in the construction business and have been scattered far and wide. As home sales continue to increase now many homes will be disappearing from the market. If builders are not replacing them by moving to supply the market demand then we will most certainly be facing a housing shortage. It may seem absurd to go from a housing glut to a housing shortage but history has a way of repeating itself. Builders may be skeptical about the economic uncertainty we hear so much about on all the news channels. Their hesitance will only add to the coming shortage of new available homes. In short, if you see something on the market that works for your housing needs right now, buy it. Your options in the near future and for some time may become quite limited. -Mike West
