Residential Magazine

Cristian deRitis, Moody’s Analytics

Record-breaking economy brightens U.S. housing picture

By Jim Davis

In all likelihood, the U.S. will break the record this month for the longest economic expansion in the country’s history. The economy has grown steadily, albeit slowly, since the end of the Great Recession in June 2009.

Unless something unforeseen happens, the expansion will surpass a decade in length at the beginning of July. The next-longest expansion ended after exactly 10 years of growth, running from March 1991 to March 2001. Cristian deRitis, deputy chief economist at Moody’s Analytics, isn’t surprised that this has been a long recovery.

“We didn’t have the typical burst of activity that we have had traditionally coming out of recession,” deRitis said. “This was a more of a longer, slower burn. It gives less of an opportunity for some of the imbalances to build up very quickly.”

DeRitis talked to Scotsman Guide about the expansion, what it has meant for the housing and mortgage industries, and the fragility underlying these times.

What has the expansion meant for the housing market?

Typically, housing and housing construction is what pulls us out of recessions. This was a very different type of a recession where housing actually got us into the recession, right? From that perspective, it hasn’t been a gangbusters type of recovery for housing as we might’ve seen in the past. The long, slow, steady expansion has continued to pull more and more people back into the labor market. That is a positive for housing in terms of demand for the long run.

Do you think we could be pushing into a housing bubble or regional bubbles?

No. You always have to be worried about some regional activity getting ahead of itself. But I don’t see any conditions for a national housing bubble at this point.

What do you think is going to happen with housing during the next recession?

The silver lining to having a fairly weak recovery in terms of housing construction is that it might set up for a more robust type of construction boom the next time around. If we get into recession, that could lead to some opportunity in terms of maybe cheaper land or more workers who are available to work in construction, and that could lead to some heightened activity in terms of housing.

The expansion has continued through two presidential administrations. Both sides will want to take credit. Are they both right or both wrong?

I tend not to put a whole lot of stock in the ability of administrations to fine-tune the economy. I think both deserve credit in different ways. If I can be diplomatic, the Obama administration had to deal with the aftermath of the Great Recession and put in some policies that kind of set the foundations for some growth. The Trump administration has also been accommodating in terms of regulatory rollbacks and changing some of the rules that made it perhaps easier for businesses to continue to grow.

The Fed seems intent on preventing recessions and some worry this has caused even larger recessions. What do you think of their strategy?

It’s kind of like the forest-fire analogy: If you try to put out all the fires and suppress any type of a flame in the forest, then you may end up allowing the forest to overgrow. When you do have a fire, it becomes a raging inferno. There’s a thought that recessions can actually be restorative or regenerative.

I think the Fed is actually taking the right course in terms of being data driven. I think it was wise to pause earlier this year after we saw a little bit of weakness as a consequence of some of their earlier [interest rate] hikes. I hope that they stick to that plan and don’t get swayed by, say, movements in the equity markets too much. They really need to focus on inflation and employment data.

A Federal Reserve report says that 40 percent of Americans can’t cover a $400 emergency expense. Are we in economic boom times if that’s actually the case?

Some of the wealth is being shared more broadly, but if you dig into the numbers a little bit, then you do see some disturbing trends in terms of lack of savings by a portion of the population. There’s a large population out there that have jobs [and] are able to pay their bills today, but they are certainly at high risk of financial ruin if there is a big, unforeseen financial shock. I do worry about the fragility of the population overall. It’s clear that the wealth and the income is not being shared equally.


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