Business lending is one of the casualties of a depressed economy as creditors have limited opportunities to deploy capital in a period of stunted growth, lowering financial returns and employment normally available to grow their business. This sector is suffering along with much of America’s economic participants due to the sluggish condition of the housing sector.
Americans have been virtually offered a master’s degree in housing economics since the financial crash of 2008, precipitated by the sudden collapse of mortgage financing. Even casual readers who consumed just one serious article per week on this subject between 2009 and today would have easily exceeded the reading requirements for several college courses.
At risk of overloading readers, trust me to consider reading just one more, which offers some updated metrics on how the lack of housing growth continues to stymie our economy. NYTimes writer Neil Irwin offers some brilliant context that soberly describes the depth of the crisis and the root of lingering aftershocks that postpone full recovery.
Briefly, the American economy normally demands an average of 1.5 million new housing units annually, but between 2000-2005, we built an average of 2.1 million. The result was an extra 2.1 million housing units at the crash.
From 2007-2013, homebuilders built 4.8 million fewer homes, which under normal circumstances, would have absorbed those extra units by 2010. But that didn’t happen because our economy suffers from ‘missing buyers.’
From 2000-2006, there were an average of 1.35 million new households formed annually, but between 2007-2013 that number fell off to an average of 569,000 units each year.
Missing buyers haven’t filled neighborhood grocery stores, fast food restaurants or day care centers with new sales and more jobs. Business lenders have been affected by lower loan demand, smaller loans and heated competition for a limited number of qualifying clients. For the loans they have funded, a slower growing economy adds risks of default and failure.