Shades of the Carter Years

Yesterday morning, the financial headlines read: "Housing Construction Surges in March". But, that headline is deceiving. Actually, single family housing construction fell. That drop was more than offset by the construction of multi-family homes; condos and apartment buildings.

This kind of home building activity is very similar to the recessionary years under Carter. But, in the Carter years, it was primarily due to runaway inflation and double-digit mortgage rates. In this recession, credit is tight and we have the constant overhang of high unemployment; thus forcing people into cheaper, multi-family options.

But, have no fear, the direct parallels to Jimmy Carter's disastrous Presidency are still yet to come. That's because inflation will ultimately hit us like a rock when the economy tries to recover. We've already seen the potential of it when the 10-Treasury notes jumped up to near 4% rates. While that may not seem high, it is when you consider that the Federal Reserve is lending at near zero interest rates.

Long-term, any new housing activity will have a downside effect. If and when we ever recover from this recession and people start working again, families are going to want to dump those multi-family homes and move back into single family nests. That means that today's multi-home building will result in a glut of those kinds of homes. This will depress the condo and the apartment markets for years to come; driving rental rates and condo prices down. That, in turn, will stall out the single family home recovery because condos and apartments, at their new lower prices, will look a lot more attractive. Then, add to this, the potential for high interest rates and I don't think home prices will recover to 2007 levels for a decade or more to come.