If you pay any attention to the news you’ve probably heard the drumbeats of the “R” word: the possibility of a recession this year. Because of the ups and downs in the tech, automotive, and telecom sectors, you’re probably starting to get nervous. Then there’s the housing market, which seems to be stalling.
Because housing is a prime market for the geospatial profession, we keep a keen eye on where it’s going. After all, resident and commercial construction means everything from bare-ground rezones and subdivision work, to construction work, to post-build services such as as-builts and BIM. For many in the profession, it’s their bread and butter.
To say the housing crisis of 2008 had a deep impact on the geospatial profession would be a vast understatement. Just talking about it gives me the willies.
Will today’s soft housing market lead to a 2008-style crisis?
Most observers don’t think so. Here’s why.
Supply: During (and for years after) the 2008 crunch, builders stop building. When you find yourself in a hole, stop digging, right? As the economy recovered, there was an increased demand for housing, which created an undersupply of homes. Although this increase in housing demand lead to increased building, most observers believe that in the U.S. we still have an undersupply of homes; this is particularly true of affordable housing. So it’s a good bet that housing construction will continue apace no matter the state of the economy.
Underwriting standards: One of the prime contributors to the 2008 housing downturn was lax underwriting standards; it was simply too easy to get a home loan. This lead to financially under-qualified homeowners as well as an increase in speculators in the housing market (e.g. short-term buying and reselling homes solely for a quick profit). These and other factors contributed to the instability in the market. However, today’s underwriting standards have tightened considerably, taking this factor off the table.
Mortgage rates: It’s axiomatic that increased mortgage rates leads to lower home-loan applications and a softer housing market. However, mortgage applications in the last month of 2018 have actually exceeded average 2017 rates. Whether this trend will continue is, of course, unknown.
Geography: This is a mixed bag here. Where in the U.S. you practice your profession will have a significant impact on your business. States that are growing in population, like Nevada, Idaho, Arizona, Florida, Washington, and Colorado, will have a greater demand for housing than states that are shrinking, like New York, Illinois, West Virginia, Louisiana, Hawaii, Mississippi, Alaska, Connecticut, and Wyoming.
Does all this mean smooth sailing and no blips in housing for 2019? Not really. While it seems doubtful that a 2008-style crisis will occur, a modest, possibly single-digit downturn could be on 2019’s horizon.
This article appeared in xyHt‘s e-newsletter, Pangaea. We email it twice a month, and it covers a variety of unusual geospatial topics in a conversational tone. You’re welcome to subscribe to the e-newsletter here. (You’ll also receive the once-monthly Field Notes newsletter with your subscription.)