The Real Estate Industrial Complex

REALLN, total real estate commerical loans, 2003 to 2013

Real estate is an important driver of the American economy, accounting for perhaps as much as 17% of GDP and one in nine jobs, by some accounts. Of course that was a pre-recession metric so how large a contributor is real estate now?

A little difficult to measure directly, but lets look at something related – the amount of outstanding real estate debt. The chart above shows percentage change in total real estate loans held by commercial banks (REALLN, black line) over the past ten years. The Great Recession is indicated by the vertical gtraybar. Growth in total loans held by commercial banks (so-called “lending books”) has fallen sharply from the pre-recession, bubble period of growth. Before The Great Recession, from 2003 to December 2007, growth in real estate loans averaged 13.6%, with peaks of 19% observed in Q3 2003. Robust, in other words, with some 8 of 58 months exhibiting double digit growth in loans before The Great Recession.

Of course during The Great Recession sharp contractions in bank’s lending books (total real estate loans) were observed, but post recession growth hasn’t really recovered, averaging only -1.6% from June 2009 to the present; in other words, in aggregate bank’s lending books have contracted after The Great Recession.

Concerning? While it is important that The United States move away from a so-called FIRE economy – one dominated by Finance and Real Estate, we haven’t identified an acceptable alternative. Unless, of course, one believes those arguments about a resurgence of manufacturing in America. And not everyone is convinced that its so bad to have a robust property market – for example, the UN warns that America needs a stronger real estate sector, for example.

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