America’s favorite home improvement program, “Fixer Upper” starring Chip and Joanna Gaines, may have gone away, but housing has come back, and that’s a big deal for the US economy.

Most folks understand housing was at the epicenter of the Great Recession, but many may not  understand why the bursting of the housing bubble made the Great Recession so great (in the worst  possible way). To better grasp that dynamic, remember real estate is our country’s most levered asset  class, which simply means most Americans take on a significant amount of debt (in the form of a  mortgage) to buy a house. Now, that debt typically doesn’t present a problem as long as the associated  asset (the house) is increasing in value; when the asset drops in value, tremendous financial pain ensues. To add insult to injury, real estate led recessions are largely immune to the Federal Reserve’s (Fed)  preferred cure for a downturn – lower interest rates. Consider the following, we buy a house for $250K,  putting 20% down and borrowing 80%, or $200K, in the form of a 30 year 6% mortgage. If the value of the house drops 30% to $175K we are now “upside/down” on the home by $25K, meaning we owe $200K on a house worth $175K (to say nothing of the $50K in equity from our down payment that has  evaporated). Our house was – as for most Americans – our most important and valuable asset. We are beyond despondent.

But wait, the Fed has cut rates to 0% and our bank is offering a 30 year 3% mortgage; we can refinance our mortgage, save hundreds a month in interest, and begin spending again – we and the economy are saved! Right? Unfortunately, wrong. We can’t refinance – we have no equity in the house and no cash for another “down payment.” We are stuck. We have to wait and hope housing and the economy heal. That dynamic, as much as any, made the Great Recession, great. Well, the very good news is that housing has come back, and then some. The S&P/Case Schiller US National Home Price Index, after dropping about 30% through the Great Recession, sits 15% higher than its pre-Great Recession peak. Unlike the late  2000s, we see no signs of excess in the housing market today, with starts and inventory both low. The cherries on top of the housing sundae are that while they stopped airing new episodes of Fixer Upper in early 2018, reruns are easily come by on HGTV and, more importantly, Chip and Joanna should be back soon with a new show on their own network. We are a long way away from the Great Recession.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Tagged: Tim Holland, weekly wire, market perspectives, housing market, Federal Reserve, Fed rates