The housing cycle, it goes round and round

Where are we in the housing cycle?

That's a question I have been asking myself lately as I mull over my five decades of writing about residential real estate.

That first story, in October 1967, concerned a proposal by a developer named Henry J. Paparazzo to develop a former chicken farm once owned by comedian-pianist Victor Borge as a retirement community - what we call "active adult" now - in Southbury, Conn., which was then a sleepy little town of 5,000 that had just gotten its first real traffic light.

Heritage Village, as the community was called, filled quickly with retirees from Manhattan and other parts of Connecticut. And, as you might expect, Southbury - current population 20,000 - wasn't the same.

I did tours of duty for two different newspapers in Southbury, before and after college, and, as a result, I became hooked on everything real estate, since the town and the areas surrounding it were growing by leaps, if not bounds.

Unlike commercial real estate, which is about business, residential real estate is about life, someone told me recently, and it wasn't the first time.

I've gotten to watch lots of housing cycles over the years, the scariest one being the dearly departed boom years between 2003 and 2007 and the disaster that followed.

There was the new-home-sale drought in the mid-1970s that led the government to offer tax incentives to buyers, much like those for first-timers that ended in June 2010.

There were the 20 percent interest rates of the early 1980s, the mid-1980s boom and the prolonged bust that followed, when, as Allan Domb said, it took until 1997 for houses in the city to reach 1987 values.

And on and on.

A builder once told me interest rates can be at all-time lows, but if someone isn't sure he'll be employed tomorrow, the rates don't matter.

With that thought in mind, in a speech to the Building Industry Association of Philadelphia's fall meeting, Kevin Gillen, senior research fellow at Drexel University's Lindy Institute for Urban Innovation, talked about the timing of the next recession.

So far, Gillen said, the current recovery that began in 2009 is 85 months old, while the average is 60 months, or five years.

The longest recovery, from 1991 to 2001, was 120 months, he said.

The current recovery has been a weak one, although that shouldn't come as big news to most Americans.

In a typical recovery, average wage growth historically has been 9.2 percent after inflation, Gillen said. Since this one began in 2009, wages have increased 0.56 percent after inflation, which means that "this recovery would have to last 80 years for wages to increase to the historic average."

The economy is considered in recession when the gross domestic product is in negative territory for two consecutive quarters, Gillen said.

There is a 25 percent probability, according to some economists, that a recession will occur in the first part of 2017, while there is "near certainty" that it will happen before 2019, he said.

What will that mean for residential real estate?

You never know. Right now, a lot of the experts are attributing recent increases in home prices to a shortage of inventory of houses that today's overly picky buyers will even stop to look at.

The price gains are not that substantial.

Most agents in this area define increases as close to or slightly above list price if - and you know you've heard this before - the house is properly priced for the market.

The future?

If only my crystal ball were back from the shop . . .



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