The
following real estate hurdles have created a perfect storm against a
traditional recovery:
pent-up demand,
short supply,
rising home
prices,
less available
land to build on,
more government
regulations controlling the industry,
labor
shortages,
material
shortages,
inflation,
wage stagnation,
delayed family
formations,
and higher
interest rates.
We have always been
faced with industry changes and adversity.
The rewards still
outweigh the risks.
Success in the face of
adversity and turmoil is not for the meek.
For the near future, we
need to start thinking about doing what we do and always have done differently
i.e. stop printing money!
The
change in the family structure to a 2-income family caused the median price of
homes to skyrocket. In the ‘70’s, the move-up market was created! The second
income added over 30% to the available income to be qualified for a home
mortgage. The housing market shifted
over night as builders built homes to meet the demand primarily driven by
available family income – the housing market changed in the ‘70’s!
1970 - 1979 2010-2012 2014
Prime Rate 12% 3.25% 3.25%
Housing Starts 888,100 800,000 947,000
US Population 213,300,000 314,000,000 317,000,000
Home Ownership Rate 64.4% 65.3% 64.8%
Participation Rate 61% 64.0% 63.0%
If you stay in your home and didn’t sell your house, you are
better off today than 10-years ago. I am not suggesting that we all need to
live in our homes for 10+ years to realize a gain but we do need to stop
looking at buying a house as a pure investment.
Buying a home has advantages;
1. It is a hedge against inflation
2. It is an investment in your
community
3. It is the foundation for your
family
4. It is like the weather, wait and
the price will change over time
5. It teaches us to slow down and
mobility is not the answer anymore
6. It is a savings account
7. It is a memory scrapbook
The housing industry has always led
us out of a recession and it would seem so again. Housing data, pricing, demand
is currently the bright spot in the economy or are we headed to another bubble?
I am suggesting that the economy is
being overshadowed by everything else that is going on here and around the
world. Without the focus on the economy, we are heading to bubble #2 and this
will be brought on by the housing industry.
I am outlining 10 reasons why we are
headed to bubble #2. You may consider this a negative or pessimistic outlook
but it is a reality and I pray will be proven wrong. If you are not paying
attention to our economic problems because of everything else, I don’t blame
you.
We are entering into unchartered
waters and the economy may be improving in spite of the problems. We must take
care of others, plan for the worst and pray for the best.
Unfortunately, I think housing will
take us into a depression which will last for years. Entering into military
conflicts used to always serve more than one purpose – military expenditures
always helped the economy rebound. Not so much anymore.
Why will the housing industry led us
into another devastating bubble and may happen as early as the 3rd
quarter of next year? I am outlining 10 reasons for you to fully consider and
research to either disagree or reluctantly agree. In any event, share your
thoughts for others to consider. The lack of attention on the economy is the
problem.
1. Families are
staying in their homes longer changing the supply and the demand curve.
2. Economic fear is in
the hearts of homeowners – why sell if you don’t have to.
3. Lack of new home
construction will be the achilles heel of the housing industry driving home
prices higher and higher.
4. The bottom line is
that there is a generation of buyers sitting on the sidelines watching without
being able to or even wanting to buy a home; delaying family formations; and
inability to find jobs.
5. Without a
sustainable economy and job growth buyers will not be able to nor want to buy
the most important product of their life ---- a home
6. In 1979, the motto
was “Where will our children live?”
Maybe not today but soon, we will be saying this over and over again.
7. Immigration
policies may add millions to the housing problem.
8. Inflation will
force housing prices higher outpacing family incomes.
9. Labor and material
shortages in the housing industry will cause production delays causing higher
costs.
10. The Fed will try
to manage a gradual rise in interest rates but will fail miserably.
Salary
less more taxes
less higher consumer debt
less inflation
less higher health care costs
plus lack of housing supply
plus
increased home prices
plus higher interest rates
equals a problem for homebuyers and
sellers.
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