Tags: Housing | data | supply | demand

The Truth About a Real Estate Crash

By    |   Thursday, 04 June 2015 10:58 PM

Home prices are a function of demand and supply. Keith Jurow, author of the Capital Preservation Real Estate Report newsletter, wrote in an article for Advisor Perspectives that "the housing collapse is ready to resume in earnest."

Reasons for the expected collapse include the fact that sales remain pre-bubble levels and mortgage delinquencies are more worrisome than the data indicate.

This analysis ignores both demand and supply.

Demand for homes is not going to decline in the coming years. The Millennial generation is a large group that will eventually need to leave their parents' basements. Although they may rent more often than previous generations, renting still creates demand for housing.

Supply is not increasing rapidly enough to meet the demands of the new generation. New home sales are about one-third of the level seen in 2006 and 2007. Any oversupply from the bubble has been absorbed by the market and new homes are now in short supply. Rising demand and low supply are conditions that lead to higher prices.

Federal Reserve data show homes are not overpriced on a national level and there is room for significant gains from current prices. The median sales price of existing homes is equal to 3.8 times the median household income. This data series extends to 1999 and the high, in 2005, was 4.7. The low, seen in 1999 and in 2011, was below 3.4.

These data show the average family can afford the average home on a national level. A collapse occurs when the average family is priced out of the market. A small decline from current price levels would most likely be met with buying by potential homeowners hoping for a bargain to appear.

The truth about a real estate crash is that there could be problems in some local communities, but the nationwide crash we saw a few years ago is unlikely to repeat until prices are much higher than they are now.


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MichaelCarr
Home prices are a function of demand and supply. Keith Jurow, author of the Capital Preservation Real Estate Report newsletter, wrote in an article for Advisor Perspectives that "the housing collapse is ready to resume in earnest."
Housing, data, supply, demand
322
2015-58-04
Thursday, 04 June 2015 10:58 PM
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