18 Year Real Estate Cycle?

18 Year Real Estate Cycle?

U.S. real estate runs in 18-year cycles, according to Santa Clara university economist Dr. Fred Foldvary. Foldvary writes: “The last real estate recession was in 1990, and real estate has been on an
18-year cycle, with the next downturn scheduled for 18 years after 1990, thus 2008.”

“My article on the business cycle in 1997 predicted real estate troubles by 2008. Theory gives us the cause and effect, and history gives us the timing…Only when the next recession occurs will some people pay attention to the real estate cycle story. But few will heed the really important lesson
— how to eliminate the business cycle.

“There are two causes and two remedies. The financial cause is the manipulation of money and the interest rate by the monetary authority. [Namely, the Federal Reserve.Ed.] We need to replace central banking with free-market money and banking…Free banking and land-value tapping would eliminate the real estate and business cycles. But intervention is so deeply rooted in the economy that federal money and real estate swings seem natural to most folks. But there is nothing natural or free-market
about depressions.

“Recessions and depressions are caused by statist interventions that distort the economy… Freddie Mac and Fannie Mae [the two huge quasi-federal lenders] are themselves government-sponsored
consolation prizes rather than free-market enterprises, and are ultimately part of the real estate problem rather than the cure…

“While Freddie and Fannie have indeed helped lower-income folks buy their first house, ultimately this
is a futile subsidy… Subsidized housing ends up driving up land rent and the price of land. By expanding the demand to buy land, facilitating the secondary mortgage market ends up hurting the
lower-income folks, as their mortgage amounts go up with the price of real estate, and by being induced if not fooled into buying a house, many just end up in foreclosure.

“Also many renters are being forced out of their homes, as ‘investors’ and speculators sell or get
foreclosed when real estate prices stop rising.”

Source: “Fred E. Foldvary, Freddie’s Big Loss? No Surprise!, The Free Liberal, 11-27-07, www.freeliberal.com