Status Update, 2016: the real estate boom and bust
The real estate cycle continues, so we can benefit from seeing where we are on the timeline.
September 18, 2016
Fred Foldvary, Ph.D.

Those interested in the 18-year real estate cycle often ask for a status report.

The volume of sales is a helpful statistic. Reports of existing home sales are published by the National Association of Realtors®. See <>

The rise and fall of such sales depends on the supply or inventory of residences current for sale, and the demand by buyers. Sales had been rising during the past year, but then slowed down due to low inventory levels. Still, there were over five million sales in July 2016.

Low inventory supply implies that the demand for housing raises the purchase prices. Indeed, the median existing-home price in July 2016 was $244,100, up 5 percent from July 2015, constituting 53 consecutive months of year-over-year gains. The median price in the US West was higher, at $346,100, 6 percent above July 2015. First-time buyers represented 30 percent of sales in 2015.

Foreclosures and short sales were five percent of sales in July, the lowest since the recession of 2008, indicating continuing recovery.  

The purchase price of real estate is distorted by government in several ways. The main intervention is the public goods paid mostly from taxing labor, which depresses net wages while pumping up land rent and value. Regulations such as zoning, building codes, and permit restrictions, also artificially increase purchase costs.

A less-known cost source is the fees imposed by the government-sponsored enterprises popularly known as Fannie Mae and Freddie Mac. They implemented “loan level price adjustments” in 2008, fees paid by borrowers, in addition to risk-guarantee fees. The National Association of Realtors® and other organizations seek to reduce or eliminate the LLPAs. See


Other cycle statistics include building permits and housing starts, as reported by the United States Census Bureau. Building permits in July were at 1,152,000, .9 percent above the July 2015 estimate. Privately-owned housing starts in July were 1,211,000, 5.6 percent above the July 2015 rate.

The St. Louis Federal Reserve Bank also publishes housing data. See  <>. Its graph of housing starts at that web site tracks the real estate cycle well. There was a big downturn of housing starts from 2006 to 2009, and the downturn preceded the recession which began in December 2007. The previous downturn was prior to the recession of 1990. There were bottoms in the recessions of 1980 and 1982. Prior to that was the downturn leading the recession of 1973. Although housing starts have been rising during the past few years, they are still well below the levels of previous booms.  

Every real estate boom in the USA has been fueled by cheap credit, and interest rates continue to be very low, by the policy of the Federal Reserve. Super-low interest rates are creating massive financial distortions, such as stock-buy backs that rise stock prices, and low returns on bonds, which drives investors to dividend-paying stocks, which then drives up those prices.

The day of reckoning is coming, but it is still a decade away, as the real estate cycle is on its historic track. Signs are pointing up, but the real estate market is not yet in bubble land. Signs of the bubble will include more rapidly rising prices, ads for classes on real-estate flipping, higher interest and inflation rates, and politicians bragging about how much better the economy is doing even while promoting even more subsidies for lower-income and first-time house buyers. Then watch for the next plunge down the financial waterfall.

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Fred Foldvary, Ph.D.

FRED E. FOLDVARY, Ph.D., (May 11, 1946 — June 5, 2021) was an economist who wrote weekly editorials for since 1997. Foldvary’s commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research included public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.