Short Housing

If there is a shortage of new homes being built why doesn't anyone believe this will continue to push prices higher? Isn't all supply vs demand?
 
That USA Today article presumes that continued high demand for housing means continued high prices of housing (the old cliche about supply and demand). But high demand only creates price growth when prices are affordably low -- consumers may be willing to pay more of a house, but if that can't actually borrow more, then prices stop climbing. The article made it clear that the segments with the greatest demand are on the low end of the market (young adults, working poor, immigrants, etc.). These are the people least like to be able to afford even a 200k home (which still requires a household income of at least 45k at current rates of about 6.5%) Affordability will plummet when mortgage rates rise and a great many recent buyers/re-fiers will discover that they bought-high and will have to sell-low.

-Traden4Alpha
 
So what you are saying is the supply/demand argument doesn't work since once prices/interest rates get too high people won't be able to afford the home in the first place?
 
Supply and demand always "works" - it is always in play. The thing with real estate is that 1) at higher prices there are always going to be more and more builders willing to supply homes, which is great while the demand lasts. 2) With the low interest rates, people are "biting off more than they can chew", so to speak. If rates increase, there are going to be a LOT of people that can't afford to keep their homes and will have to sell, creating an over abundance of supply. What do you think that will do to prices?
There is also some evidence of a speculative bubble, with all the people reading "the price of real estate can't go down" books (scared away from stocks), and are therefore leveraged to the hilt.
 
The USA today article uses the same reasons supporting increases in prices used in prior run-ups. They all ended the same way.....

Later,

Cracked
 
daniel_m. I agree on most of your points but my question is, if people have to sell their homes due to job loss,etc where would they live - back to mom? What is more realistic in my opinion is a compression of the spread between 'regular people houses" 150k-350k depending on where in US) and the trophy houses > 500K.
 
You must log in or register to reply here.
Back
Top