Five years after the collapse of Lehman Brothers and the onset of the 2008-2009 financial crisis, the U.S. housing market is at last starting to thrive. It has, in fact, been steadily improving over the past years, and that trend has only accelerated of late. Housing is widely perceived as a key ingredient to a healthy economy, and so the revival in the housing market has been heralded as a positive step for an American system that has been sluggish at best. Similar trends in the United Kingdom and parts of the EU are greeted as positives as well.
But is it? Housing is a key aspect of economic activity in most countries, but that doesn’t mean that we should welcome a return to housing as a perceived pillar of national strength. And we should be very wary of any return to an ethos that sees either home ownership or housing prices as a barometer of individual and collective success. Those attitudes very nearly imploded the modern financial system, and they could imperil it again.
Homes are places where you live. They are not — and should never have been — investment vehicles. Yes, homes may gain in value and augment one’s net worth, but the reason to own a home is that it can be a cost-effective way to obtain a place to live. The minute they are seen as investments, that reality gets perverted, with dangerous consequences.
There’s no doubt that the economics of the housing market have been steadily improving. Foreclosures have dropped in half since their peak, from over 1 million in 2010, to a predicted 490,000 this year. Housing starts are up nationally, from a low of less than 500,000 in 2009 to close to 900,000 this year, and prices are up more than 10 percent over the past 12 months.
These national trends are neither evenly distributed nor certain to continue. The Northeast, for instance, has been weaker of late than the rest of the country. The recent spike in interest rates, triggered by the imminent Federal Reserve decision to curtail some of their aggressive bond buying, may dent the momentum as well.