We've heard all about the housing "bubble", how homes were over priced and prices were bound to fall. It certainly seems something has popped.
Its not a housing bubble, homes were not over-priced. At least not in the long term. While the cost of buying a house has dropped the cost of what is in a house has not. Talk to a builder, electrician or plumber. They will tell you material prices have gone through the roof. The cost of replacing your existing home has not dropped and existing homes are certainly less expensive than new.
Our current situation has been caused by loose lending practice, not over priced homes. People who could not reasonably expect to repay loans bought homes. Most of those homes are on the low end of the market and the banks have to take them back. Now the market is temporarily flooded with them. Until that huge inventory of homes is sold, the market will be depressed.
There are many people out there in the middle and upper segments of the market who would like to move or build, but they are sitting out because they need to sell their homes before they can do anything. When we finally sell the current inventory of foreclosure homes the market will start to heat up.
Material prices are up, fuel prices are up. Builders will not be able to offer homes that compete with the existing home market.
There will be a housing market with multiple offers and rising home prices. The effect of higher oil prices will have worked its way into the economy and there will be high inflation. Home owners will have instant equity. Real Estate will be the best hedge against inflation which will add to the escaltion of home prices.
I have heard it said that, suprisingly, we haven't seen much inflation as a result of the increase in oil prices.
If oil prices are up and not coming down, then the inflation has already happened. We just haven't measured it yet. It hasen't made its way through the system yet.
If everyone who drives a car or truck or airplane is paying $50 for a fill when they used to pay $30, how can there not be inflation? If rubber and plastic use petrolium in their manufacture, if steel uses energy in its manufacture, how can there not be inflation? If countries like China are growing, as they are, and consuming natural resources, how can there not be inflation? Lots of it.
If you run all of your credit cards to the limit, you might not see the bill for a month, but you know it is coming. Similarly, we should know that big inflation is lurking out there somewhere.
I'm not suggesting everyone should run out and buy a house. And I'm not rubbing my hands with glee at the prospect of a hot real estate market.
The housing market won't swing tomorrow, but I feel strongly that it will happen. The point of this post, that the real estate market is going to bounce hard, seems obvious, but no one is talking about it.
I wonder what others think. It would be interesting to get a comment on this.