I read an interesting article today in The Economist which predicts a fall or flattening of real estate prices in the US. I can’t help but agree that the irrational exhubrance of the stock market may be repeated in real properties. I’ve had this nagging feeling about it as well, but that may just be the high Seattle housing prices. But it certainly feels like the stockmarket bubble again.
The article makes a claim that the only hope for real estate is that prices stay flat since we seem to be mimicking what happened in Japan (where prices have been falling for 10+ years) and Europe and Austrailia (where prices are beginning to fall).
The article quotes the author of “Irrational Exhubrance” that the real prices of housing has actually stayed flat if you remove inflation, the goverment subsidy after WWII and the last few years. The real reason you buy houses isn’t to watch prices soar, but to protect yourself from inflation. Interesting theory. And since inflation is being well managed, we’re in for a long wait for housing prices to rise once they fall.
As much as we hate to admit, the US is not immune from the laws of economics. I have all but decided to stay out of the market for the next year — the wedding and Emily’s move being the main factors.
Housing prices may keep rising, but after thinking about it, I know I should resist the temptation to but at the top. And this isn’t a result of gut instict. Looking at the apartment rental prices around here, it seems way far cheaper to rent — even after taking the tax break into consideration. And since people need to live somewhere, the fact that mortgages far outpace rents underscores my feeling that prices are amiss. That metric is a traditional measure the market seems to be ignoring. Another aspect is that first-time home buyers are beginning to be priced out of the market. Prices can’t keep growing faster than our ability to generate income.
What really worries me is that consumers keep using their homes as ATMs, withdrawing cash from it as if it’s a money tree. I know a guy who purchased a Porsche Boxster with his home equity. I’m afraid a flat housing market will throw us back into a recession. I think I’ll start hoarding as much cash as we can.