HISTORIC EVENTS PROMPT

I think these two major historical events that impacted the economy are key roles. Both have happened during my lifetime. We see oil prices changing daily and house market crashing. In this post, I write briefly about why I picked these two specific events, and why I believe it impacted the economy.

OIL PRICES: Over the years, oil prices have fluctuated. The last two major oil price declines were driven by central bank policy errors – monetary contractions that led to global economic recessions. During an economic recession, the world economic activity contracts and demand for oil declines. When demand for any commodity contracts, prices decline. The current oil price decline is not accompanied by an economic growth contraction. It’s the first of this type of decline the world has seen in many decades. The current oil price decline isn’t being driven by a decline in demand; instead it’s being driven by an increase in supply.

HOUSE MARKET CRASH: House market crash has been like a roller coaster ride. It has its up and down moments. While stocks typically have a price-to-earnings ratio of 15, they now sit at a ratio closer to 23. At the peak before the crash, the median sale price for a home in the U.S. was $200,000. By the time the market reached bottom, prices had dropped 29%, to $140,000. While today’s national median sale price has rebounded to $185,000, it’s still about 7.5% lower than the pre-crash high.