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East Carolina University is home to the leading construction management program in the southeastern United States. Its mission is to prepare students for careers in the construction industry and to provide them with real-world solutions to construction problems. It is in this spirit that ECU’s Department of Construction Management, in partnership with the
National Housing Endowment
, recently presented the second installment of its Building Communities Webcast seminar series entitled “The Upside of Downtime: Why Residential Homebuilding is Still the Path to Success.” Moderated by ECU trustee and vice chair of the National Housing Endowment Mark Tipton and featuring panelists Jerry Howard and Dr. David Seiders, this Webcast offered insight into the current state of the residential homebuilding industry and offered explanations of, and solutions to, the causes of the current housing crisis.
Recent news has not been good for the housing industry. Media outlets are reporting record lows for home sales and new home construction, and record highs for mortgage foreclosures and existing inventory. But what is causing all this bad news? And what does it all mean to North Carolina and to those about to enter the housing market for the first time?
In order to fully understand the current situation in the housing industry it is important to understand how the industry operates. Housing is not a national market in the way that commodities are. Home prices are regionalized and subject to the local economy of the area. As economies go up and down, so to does the cost of housing. For every high in the industry, there is a low—but over time, the highs have outpaced the lows.
“Housing has always been, and will always be, a very good long-term investment,” said Jerry Howard, executive vice president and CEO of the National Association of Homebuilders (NAHB).
But after nearly 15 years of a stable housing market, much of the United States is currently experiencing a serious housing downswing—the bust portion of a boom/bust cycle.
“A lot of people in the housing industry have never experienced [a bust] before this time,” said Mark Tipton.
A boom/bust cycle can be applied to any industry in which sudden, rapid growth and expansion lead to increased prices and increased production. Over time, production catches up with and then outpaces demand, causing prices to readjust—often dramatically—downward. When a boom/bust cycle is localized to a particular housing market, it is referred to as a housing bubble. When that market declines, it does so quickly, and the bubble is said to have burst.
Boom/bust cycles are common and have occurred throughout the 20th century in the United States. “Housing is a cyclical business. I don’t think there is any argument about that,” said Tipton.
But Dr. David Seiders, chief economist for the NAHB, disagreed with the notion that housing is inherently a boom/bust industry. “Back in the older days housing was definitely in the boom/bust category. The last big setback we had was back in the early '90s and that was a pretty big one. [The industry] cruised through the recession of 2001 virtually unscathed, which led a lot of people to argue that the housing cycle was essentially dead,” he said.
ECU Macroeconomists Weigh in on the Housing Crisis
Dr. Randall Parker and Dr. Philip Rothman are faculty members in ECU’s Department of Economics. Parker teaches macroeconomics and monetary theory at ECU, and has authored two books on the Great Depression. Rothman’s fields of interests include econometrics, applied macroeconomics, and forecasting, and he holds editorial positions at numerous academic journals.
“I don’t think a recession is coming, but I hope it isn’t,” said ECU macroeconomics professor Dr. Randall Parker. Those ominous words are from a man who has written extensively on the Great Depression and the characteristics of the American economy in the 1920s that led to the greatest economic disaster in history.
Today, with the nation embroiled in a considerable slump in the housing industry, many experts are wondering what’s next. Could a recession be looming in the coming year—perhaps something worse?
It is difficult to predict a recession, but if one were to come about, it could easily be attributed to the current housing crisis. The common misconception according to Parker and a fellow professor of macroeconomics at ECU, Dr. Philip Rothman, is that recessions are caused by losses in the stock market. This belief is widely held due to the stock market crash of 1929 that is synonymous with the Great Depression. But were it not for a multitude of other factors—including increased inflation, real estate speculation, and increased personal debt amongst the population—the crash of ’29 would not have caused the decade of economic instability that followed.
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