A Solid Foundation: Why has the housing market weathered the economic downturn so well?

My article for the Kogod School of Business

A wave of pandemic-induced uncertainty has thrown a pall over America’s economic performance, yet one sector remains a defiant shade of rose against a generally dark background. Why are home sales rebounding so quickly, with some locations reporting a return to the days of bidding wars? Is this a meaningful and lasting trend or simply a function of limited data from which to draw conclusions? “I think everyone in the industry is asking themselves what the new normal will be after such a cataclysmic event,” says Professor Steven Teitelbaum, who teaches Kogod’s Real Estate Development class and works in transit-oriented development and smart growth.

At the beginning of the pandemic in March, home sales fell by 8.5 percent as potential buyers lost their jobs, contended with economic uncertainty, or simply avoided moving due to health concerns. Existing home sales in April fell by almost 18 percent, but prices rose 7.4 percent compared to a year ago.

What could explain why basic supply-and-demand principles don’t seem to apply here? A huge drop in demand should put downward pressure on prices as the market sways in the buyers’ favor. But in this case, while demand dropped, so did supply. Sellers withdrew from the market for the same reasons that buyers did. New home listings fell dramatically after the stay-at-home orders, with estimates ranging from 29 percent to higher than 50 percent.

The drops in supply and demand were generally proportional to each other, but the lower number of transactions made it more difficult to analyze how prices moved in aggregate. “Data is so scarce that one blip sends things teetering toward one end or the other. It is hard to come by meaningful averages,” explains Teitelbaum.

Limited housing supply is likely to be a more prominent issue in certain areas. The pandemic has also affected new build construction. Professor Kim Luchtenberg, professor of finance and real estate, says, “The DC area will remain relatively sheltered from a real estate sector downturn because housing is in such limited supply. This will keep prices high, so buyers will not see much change.”

The number of homes listed for sale in the DC metro area dropped more than 37 percent compared to April 2019, resulting in the lowest inventory in the past 10 years.

A decrease in overall home sales has a number of effects. Home sales generate much spin-off economic activity. Local governments rely on revenue from deed transfer taxes to fund public services. Occupations like real estate agents, home inspectors, and other agents lose streams of income, as do support services like moving companies, furniture and appliance stores, landscapers, and maintenance technicians.

From a social perspective, people often buy homes when relocating for work, having children, getting married, or downsizing for retirement. An economic downtown that makes homeownership inaccessible may delay many of these milestones. For example, the Great Recession caused delayed household formation among young adults.

A much more grave concern is what will happen to the homeowners affected by the general economic downturn. “Foreclosures and mortgage defaults are sure to happen once the protection period ends,” says Luchtenberg. No one is sure how this will affect the real estate industry or the economy as a whole.

With so much turmoil in the stock markets and retail and hospitality real estate markets, plus general economic uncertainty, are investors attracted to the seemingly untouchable residential real estate sector? Luchtenberg and Teitelbaum concur that this trend is afoot, but in an unusual permutation—investment in single-family home rentals. This was the case immediately following the 2008 collapse, and currently, these kinds of rentals are one of the fastest-growing investment vehicles both for large corporations and individual investors. “The second-best option to owning a home is renting a single-family unit. Investors see that,” says Teitelbaum. Luchtenberg is currently writing a research paper on this phenomenon as well.

While understanding the “new normal” seems like an impossible proposition, in the DC area, at least, the old normal of a robust residential real estate market remains.

The Call: Inside the Global Saudi Religious Project Book Review

My review  for the Washington Independent Review of Books

An in-depth look at the export of conservative Islamic teachings from the Arabian Peninsula.

The term “soft power” is ubiquitous enough that it has long left the international relations arena behind and moved into public discourse. It seems intuitive that changing hearts and minds is a much less costly and subtle route to hegemony. But what sort of work is soft power and what sort of an export is ideology?

Krithika Varagur’s The Call: Inside the Global Saudi Religious Project is an incisive, salient, and comprehensive exploration of the sort of philanthropy that comes with a heaping side of religious proselytizing. Varagur brilliantly captures the complexities and contradictions of Saudi Arabia’s export (intentional or incidental) of Salafism and portrays soft power for what it really is — messy, highly unpredictable, and a far cry from the puppet-master-like characterization it has recently received.

The author offers three case studies on three continents: Indonesia (where she lived for several years); Nigeria and the rise of Boko Haram; and Kosovo, which has the dubious honor of having “contributed more foreign fighters per capita to ISIS than any other country in Europe.”

It would be wrong to characterize this book as a “follow the money” exposé, all the more so because that trail has been cold for decades. Money is no longer flowing as it once did; Mohammed bin Salman, the new Saudi prince, seems especially uninterested in the grand dawa pursuits of his predecessors. Instead, Varagur’s journalistic acumen shines in her interviews with imams, government leaders, students, and the media, and in her own observations.

Dawa refers to the call or invitation to Islam, akin to mission work. The State Department estimates that as much as $10 billion has gone to charitable organizations as part of the Saudi dawa. Saudi Arabia’s Dawa Ministry has a staff of over 9,500 people, a $1.86 billion budget, and is responsible for dawa, as well as the maintenance of mosques inside the kingdom.

Saudi Arabia’s dawa project reached apotheosis following the 1973 oil embargo, which made the kingdom flush with petrol wealth. The Islamic University of Medina, built by King Faisal in the 1960s, brought its students into the Wahhabi fold. The oil money went toward such large projects in Indonesia as, for example, a university, a large Saudi embassy, and the presence of a “religious attaché.”

“Wahhabism is a movement within Sunni Islam named after Muhammad ibn Abd al-Wahhab, an eighteenth-century preacher who sought to purify his faith of the idolatrous and blasphemous practices that he thought corrupted the austere monotheism at the heart of Islam,” writes Varagur. Wahhabism lent the Saud family the religious legitimacy necessary to entrench the monarchy and shelter it from more global influences, like that of Pan-Arabism or socialism.

Varagur presents both the dim view of Salafism and its appeal (Wahhabism is a Saudi-specific term; its outside counterpart is called Salafism). Its obsession with minutiae — like how to pray, what music (if any) to listen to, and whether to take pictures with cats — speaks to its conservatism.

The flipside of what Varagur calls its small-mindedness is its austere simplicity and, she astutely points out, its accessibility: Doctrinal knowledge comes directly from texts, which are nowadays available online and simple enough to not require a mediator.

Although Saudi dawa has waned in influence and investment, The Call demonstrates how ideological ecosystems take on a life of their own. The influence of Salafism is much more apparent now, perhaps because the problematic link between charitable aid and religious indoctrination is equally so.

For example, Saudi dawa helped rebuild the Ache and other regions of Indonesia devastated by the 2004 tsunami, gaining a foothold for its puritanical brand of Islam. Indonesia, a modern and tolerant Islamic society, now has an anti-Shia league, and Ahmadiyya Muslims have been driven into refugee camps.

Perhaps one small shortcoming of The Call is Varagur’s failure to draw parallels between Christian development organizations and the rise of intolerant Christianity abroad (Nigeria comes to mind). She remains steadfastly focused on Salafism, when situating her argument into a larger context might have served it.

Ultimately, Varagur argues, the intersection between political Islam and the public sphere is complicated. But three consequences, in all of her case studies, are that an educated class of Salafi scholars, who then shape the local religious landscapes, emerged; there is rancorous intolerance against Shia and Sufi Muslims; and there is greater popular consumption of Salafi books and media worldwide. A turn toward fundamentalism breeds an environment of intolerance and strife.

“The Saudi project,” she writes, “can be chaotic and full of contradictions.” So has been the response of the rest of the world to it. In the past, the West was all too happy about the way in which conservative Islam served as a counterweight to leftism and communism and stabilized the monarchy’s control of the region. But the West has also mistakenly attributed myriad conflicts in the region to historical theological differences, which are actually fairly modern and political in their origin.

Krithika Varagur writes with the precision and nuance of a seasoned journalist. The Call is a must-read for anyone wanting to understand the complicated history of the Saudi state and its religious missions. The book also raises questions about the uneasy and problematic connection between aid and proselytizing.