There were numerous reasons to be aghast at the housing
fiasco and the vast amount of collateral damage that was
inflicted on the economy and the financial system. Prior to the
bubble, housing itself was thought to be “too big to fail.” Not only
was the value total for residential real estate huge—in excess of
$20 trillion—but it was so granular that few economists believed
it vulnerable to systemic collapse. But collapse it did, leading
the nation—and the world—on an epic, stomach-churning
Remarkably, housing seems to be putting the excesses of the
bubble and the ensuing collapse behind it. The trend in residential
real estate looks to be returning to the classic principles of
supply and demand, with great sensitivity to any deviation from
equilibrium quickly reflected in transaction volume and pricing.
As this major segment of the economy—still the principal
repository of wealth for tens of millions of households—returns
to textbook fundamentals, we should see increasing confidence
emerge in the residential sector.
There could hardly be a more
positive trend for the economy as a whole.
What under-girds such a hopeful outlook? Even as the housing
market became severely dislocated, the growth in the number
of U.S. households continued at a steady pace. Rental housing
benefited while single-family-home construction plummeted.
The result, over a period of years, has been an enormous
shortfall in the supply of new for-sale units. That shortfall now
amounts to 9 million homes.
The production shortfall, in turn, has enabled the “months of supply”
figure calculated by the National Association of Realtors (NAR)
to hover around five months since late 2012, with existing-home
sales averaging 2.1 million over the same period. There seems to
be a point of balance for single-family residential, and it has stayed
steady around that point for two years now.
That’s a good thing. Meanwhile, though, disposable income growth for American households has been lagging seriously. Home builders and their lenders—clearly recognize that the recent price recovery in housing has outstripped incomes. And this time there is no funny
money being generated in shady mortgage deals.
So prices are not re-inflating to bubble levels. In other words, discipline looks to be governing the market. Thanks to low interest rates, the NAR’s Affordability Index is still relatively high at 165, so the market should enjoy decent liquidity even if rates bump up.
A healthy story is shaping up, whereby housing should anticipate
moderate price increases, solidly based on buyers’ ability to
pay, fluctuating in a fairly narrow band along with minor ups and
downs in the NAR’s existing-home sales figures. It is a healthy—if
boring—story. But after the thrill ride of the past decade in housing,
boring is a very, very good trend to report.
If you like to know how you as a home seller can benefit from the steady housing recovery, and cash in on your existing home equity, and be able to sell your home for top dollar, please give me a call or send me a message to schedule an appointment at 760-235-9688 so I can help you take advantage of the equity of your home, and how you can use it to build your retirement portfolio.