In 2008, the housing bubble burst, which took our whole economy into the “Great Recession,” the worst economic downturn since the Great Depression, which began in 1929. In the current decade, the process could be reversed, with an economic downtown slowing the latest run-up of housing prices. Is a recession eminent? No one knows for sure, and unique factors both globally and locally will play as yet an unknown role in in determining the answer to that question.
As an economics major (who still makes a practice of studying the discipline), a former Federal Reserve Bank employee and a life-long banker, I have long believed that the interest rate yield curve shape has been the most reliable indicator of an impending recession over the last 65 years. The interest rate yield curve is said to be inverted when the interest paid on a one-year US Treasury security exceeds the rate paid on a 10-year instrument; normally, the curve slants up, not down. Every measurable recession since I was born (there have been 9 since 1956) has been predicted by the inversion of the yield curve. Only once during that time period did an inversion occur without an ensuing recession. We are close to another yield curve inversion; in fact, it has occurred momentarily several times in the last few weeks.
How does the inverted yield curve impact housing? Eventually, the rise in short-term interest rates pushes up longer term rates, including home mortgages. A rise in unemployment usually follows the rate increase. When mortgage rates and unemployment increase significantly, the housing market slows down. This will be particularly hard on rural America as we have not experienced the building boom seen in metropolitan areas, and our crying need for additional housing will go unmet awhile longer.
Making it even more difficult for Bourbon County to generate new housing is the hangover from the 2008 housing bust. Previously, we had several builders who were eminently qualified and resourced to build a quality home here, but no longer. Yes, we still have qualified builders, but they no longer have subcontracting crews on which they can rely to construct a quality home on time and on budget; those tradesmen are not sitting around waiting for the next opportunity. Assembling the expertise to build a new home in the future will be a challenge.
Bourbon County REDI and the board of the new Land Bank are aware of these factors, and are committed to searching for creative solutions. It will not be easy, but we need to stay alert for opportunities to solve the housing needs in all of Bourbon County.