The new business cycle: Part 2

What about 2008?

In this post I will continue the discussion of how a housing shortage changes the business cycle.

Series Table of Contents:

• Review of 2008 vs Today (free post from 2024)

• Introduction

• Part 1: A Housing Shortage Reduces Cyclicality

• Part 2: What about 2008?

• Part 3: The Components of Home Price Deviations

• Part 4: Migration and the Cycle

In Building from the Ground Up, I described a narrative of the 2008 crisis from the point of view that we had a shortage of homes rather than a glut. Changing that presumption, of course, greatly changes your perspective about the wisdom and consequences of policy choices throughout that period.

If there was a shortage of homes, even in 2005, then what should policymakers have done when new home sales started to decline sharply in late 2005?

Here, I will push my alternative presumptions a bit further. I think the notion that a housing shortage stabilizes the business cycle adds some narrative mortar to my narrative of 2008.

How would we describe the 2008 crisis if (1) there was a shortage of homes rather than a glut, and (2) housing shortages reduce economic cyclicality.