The on-line Business Dictionary says:
The somewhat irregular but recurring periods of change in economic activity over time. A business cycle is generally divided into four stages: expansion, prosperity, contraction, and recession. The stage in which an economy operates has a significant impact on a firm’s profitability and prospects. This impact is especially severe with respect to firms that experience large swings in sales and profits. Many analysts believe stock prices tend to lead the business cycle. Therefore, it is felt that bull markets begin before a period of expansion and that bear markets begin before a period of contraction.
Turn on your TV set today”
so . . .
We hit recession which slid into DEEP recession in spite of every attempt the government made to “soften the fall” and keep things as they were during the times of prosperity.
The Macro-Economic Cycle is the locomotive and “Contraction” happened just as the model suggests . . . Those times of prosperity were euphoric . . . Money was growing on trees . . . and the entire economy continued to relish in the frenzy that ensued.
Little known (or acknowledged) was the subtle nuance that this prosperity was contrived. It was a figment of everyone’s imagination . . . a dream. Much of the fuel for the prosperity came from “borrowing from the future.”
In the real estate industry, the loosening of lending guidelines continued to perpetuate home sales at a continually expanding rate . . . and when recession showed up, the bank bail-outs and Tax Credit programs came along to continue to entice buyers to BUY at the same rate . . . This was NOT a tenable situation.
At some point, we would run out of resources . . . The machine would become larger than life and running amok.
Home ownership in the US approached 70% . . . That was the government’s goal . . . 70% . . . and on a macro level the realistic (healthy) percentage of home ownership would naturally gravitate @ 60% or less.
We borrowed from the future until the the well went dry.
Government programs and policies continue to (artificially) hold interest rates at all time lows in the hopes that low rates will continue to give buyers incentive to BUY NOW! That’s what we all want, right?
Yet . . . these low rates have actually put the squeeze on MONEY. Banks can’t make “enough” money and are less interested in making loans to the very people who need it the most to get this economy moving again – The Small Business owners.
The bottom line . . . We did expansion – Then Prosperity – Then contraction began (This is when the game playing commenced) . . . and recession hit . . . and the government’s response to recession was to do whatever it takes to deny it and to soften the blow with artificial stimulation.
The cycle is going to win in spite of these efforts . . .
The next phase of the cycle is “Expansion” . . . and that phase will show up initially in the form of INFLATION.
My bottom line . . . Interest rates will soon rise and when they do, they will do so in “jumps and starts” and I believe relatively quickly. As that happens, more money will flow as the banks begin to ramp their operations back up . . . resulting in more funding for small businesses (including home builders) . . . and home values will subsequently increase.
As a REALTOR, I know all too well how these market cycles unfold and how they affect people . . . I think what I have witnessed is a “delaying of the inevitable” as SO many people (politicians) pulled out ALL the stops to keep things the same (in prosperity).
Let the cycle flow and enjoy the ride 🙂
Any feed-back welcomed!