CYCLES

Hola! This week Shari and I have had the pleasure of spending time in Playa del Carmen, MX where it appears they are building condos and developing every vacant lot available. Just a few years ago developers could not keep up with demand; now supply has surpassed demand and some developments are standing idle.

Home building runs in cycles; in the U.S. we have had four such cycles since the early 1970’s. Housing starts peaked in 1973, 1977, 1984 and 2006. Those peaks were followed by troughs in 1975, 1981, 1991and 2007 respectively. The same is true for home price appreciation. We had peaks in the mid to late 1970’s early 1980’s and 1990’s and the longest one from 1996 to 2006. You guessed it, each peak period was followed by a trough period.

According to the Bureau of Economic Analysis, new-home starts have fallen by at least 60 percent from their peak in past cycles. In the current cycle housing starts have fallen 47 percent. We are living with the legacy of the investor/speculator boom and lenient mortgage underwriting. Oversupply caused by overbuilding has been augmented by foreclosed properties. The number one indicator for a market upturn is a decline in new homes from an eight-month supply to a six-month supply. If builders don’t control supply it’s going to make the recovery that much more painful.

Fortunately, our market is similar to Playa del Carmen but on a much smaller scale. People go to Playa for the sun, ocean, beaches, great restaurants, shopping and relaxation. They purchase housing because they feel it’s a good investment in an international market. Folks come to our area for the pristine lakes, tens of thousands of acres of woods, clean air, four seasons, great restaurants, shopping and world-class events. They buy real estate because they feel it is a good long-term investment. Cycles happen; we have experienced them before. We don’t live in a boom or bust area so our highs and lows aren’t as severe as some other parts of the country.

Ok - I hear it’s really cold back home so perhaps a little extra time on the beach would be a smart consumer choice!!??
Have a great weekend…..Life Is Good….Enjoy!

Thanks to Dennis Smith for some of this week’s home building info…

Gary Nathan
Woodland Dev. & Realty
15617 Railroad St.
Hayward, WI 54843
715-699-4040
nathan@cheqnet.net
www.garynathan.com