Foreclosure.com Scholarship Program Winning Essay 2015, Alexander Haynes (Runner-up)
It’s a housing drip, not a full blown macchiato
by Alexander Haynes, Embry-Riddle University
The underlying factor in all drinks at a fancy coffee shop is the element of coffee. You may be the simple person who enjoys a dark roast drip. Or, you may enjoy a double shot macchiato with many other underlying elements. No matter, the fact you are drinking coffee does not change. Much like data on the housing sector, it may not be a bubble; but that does not distract from the element that underlying economic negativity is at play.
By definition a housing bubble must burst, causing real estate prices to plummet. Although a CoreLogic report initiated data that real estate prices are now above realistic income to be purchased, they predict that pricing will not come down. According to their research the fuel behind the quasi inflation is a large demand from buyers and a small development cycle from homebuilders. A case study in Texas points to this: housing demands are at a high while development is at a 1980’s rate. Furthermore, those who are buying have stronger investing potential indicated from a rise in cash purchases. Thus, it is a factor of prices rising simply because they have the potential to.
However, there is a potential for further study along these lines that point to more underlying issues. It would be easy to assume the economy is healing on a wider scale because more people are buying houses. In contention, this may be a case only instance. For not all macchiatos are whipped up with the finest ingredients. To assume that a rise in housing prices is positive is nice thinking. A housing bubble will not truly occur, and it is more of a cycle. But, the ingredients that point to a poor macro economy can still be found.
Texas is currently experiencing a strong revival in their economy, and has been for some time. Competitive business indicates a movement of industry into that area. Movement of industry is followed by an influx of families looking to purchase housing and real estate. A strong economy might be indicated by a strong housing development market; home builders are ready to begin development. Yet, they are not. The underlying factor is that the housing sector has not been built up on a national scale. Let us put it in other terms and base this off of sector growth indications.
Local economies (Such as Texas) grow off of indications of competitiveness and influx of business. Small business is the backbone of the economy, a common cliché. Part of the beauty of small business is that it grows with local economies, not necessarily dependent on Wall Street (which in here I could make an argument for a smaller federal government). Large business industry also develops in a similar fashion. Although corporate may have tied hands with Wall Street, putting a company’s larger success inside Wall Street, their small manufacturing sites operate such as small businesses in their movement across the country. The more favorable and competitive the laws for an industry factory, the more willing a business is to move in that direction.
Contrasting this to the housing industry — the overall point — is a tie in occurring with Wall Street (Note: this is not inherently bad for certain sectors, just the way the economy cycles). The housing drip currently being experienced is not isolated to developing areas, it can be experienced across the country. A certain amount of housing development is dependent upon local areas, thus the drip would be more noticeable in a booming area such as Texas. The drip is being poured from more than just development, it is being poured from an uncertain economy in other sectors and Wall Street. On Wall Street main backers have not yet bought into a growth of the economy. A national movement on the housing market has not yet been felt, thus educated fear has kept development down. This fear develops mainly from the last bubble that burst (or macchiato that was developed to stay true to the analogy), arising that a national growth would cause another mortgage backed bubble. National Labor rates and individual investment rates in non-recovering areas of America point to in proper mortgages being attributed at an unhealthy rate. Off of Wall Street (although playing into their fears) other sectors such as import, export, industry, etc. do not have confidence intrinsic with themselves. While some sectors may have seen a growth, it is not a growth that is willing to increase housing at a national level.
The housing drip currently underway is not a macchiato yet, and nor will it become one as Wall Street has ordered a dark drip. Their reasoning lies within not being at Starbucks; rather at a second rate coffee shop that whips a macchiato with half-hearted ingredients. Those half-hearted ingredients are evident enough to be the cause for a waste of resources and potentially cause another quasi-lunch time stomach ache. The housing drip does not point to a wiser economy growing, much like someone grows from ordering a hot-cocoa to ordering a drip to ordering a fancy drink of their choice. Rather, the facts point to a sick economy not yet prepared or willing to buy into the macchiato ingredients.
The winning essay above was submitted to Foreclosure.com’s scholarship program.
The 2015 essay topic:
Several years ago, the real estate and mortgage meltdown had a crushing impact on the United States economy that also negatively affected countless families nationwide. Today, the situation has significantly improved, with ‘boomerang buyers’ recovering and getting back into the market. Looking back, what lessons did we learn from the collapse, what is/are the silver lining(s) and how are real estate buyers today benefiting from those past mistakes?
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