Listening to the news I frequently hear or read articles by economic experts who quote statistics to support an imminent crash in housing prices that is defined as a correction.
It seems these dire predictions are no more than means to get attention by using a lot of statistics that do not do anything more than create a needless fear. This correction is no more than one person’s perception of where things should be. Perceptions that are as bad as mortgage lenders who use their values to determine what a person can afford to buy.
In order to have dramatic drop in house prices you must have a sudden oversupply of houses or some dramatic drop in demand for housing.
An oversupply of houses will happen when too many people suddenly sell their homes. Why would people suddenly sell their homes? If the economy drops and creates high unemployment like it did 10 years ago, this could happen. We now have an economic recovery with continued decreases in unemployment levels. So if these economists who push the fear of a housing decline cannot demonstrate that the economy is going to reverse the positive trend, they can not justify predicting a housing crash.
If the housing supply is not going to suddenly increase, is there going to be a sudden drop in the demand for housing? The biggest factor in the demand for housing is affordability, which is affected most by the cost of borrowing – interest rates.
When banks can offer long-term low-interest mortgages, you can bet they do this only because they do not expect interest rates to drop anytime soon. So if the interest rates are not going up soon, what can make housing unaffordable?
The doomsday economists will use their value system to show that personal debt is increasing and affording a house is more difficult.
If there is any sign of increased debt it is a gradual thing that consumers accept. There is no point where suddenly consumers say as a group that their debt is too high to afford buying a house. Those with large consumer debt are not those planning to buy houses and suddenly realizing their debt is too high to afford it.
The negative economists also fail to consider the changes in buyers. For instance, the economist will always compare single house cost changes while the actual buyer of today will be buying a different product. The single-family home prices are influenced to a much greater degree by overseas investors who have raised the average price. Very few first-time buyers consider the single-family home option.
Until the economists who predict a big housing correction can show there will be an oversupply of housing or some dramatic drop in demand for housing, it is safe to ignore their dire predictions and rely on simply common sense.
Retired sales rep