Tag: Housing affordability
Housing affordability is very high but contrary to the past, it does not translate into higher sales volume or prices. Historically, housing prices had downward pressure when the housing affordability index was low and vice versa, housing prices had upward pressure when the affordability index was high. These days, the affordability index is above 140 which is close to an all time high (see chart). This would indicate that housing prices experience upward pressure, not downward. Judging from the Charleston/ Folly Beach market and looking at recent price declines in other markets, the fact is that prices are expected to decline further in the short term. The reason for that, I believe, is the lack of available credit and the recession. Let’s try that again. The reason for that, I know, is fear. There is fear of further price declines, fear of a worsening recession, fear of job loss, and fear of the unknown. Buyers want to be certain that the worst is over before investing any money – be it real estate or stocks.
There is no lack of buyers, but there is a lack of ready, willing and able buyers. Without the confidence that things will improve soon, the buyers are on the sidelines. The silver lining is that penned up demand is being created. While new home construction (both single family and apartments) are at a pace of 433,000 units per year and new home and existing home sales are at historic lows, America’s population is growing by 3,000,000 yearly which translates into 1,200,000 households being created yearly. I am not an economist but something is going to have to give sooner or later.
Looking at recent closings, pricing has reverted back to 2004. Taking out the up in 2005 and down in 2007 and 2008, that’s five years of no appreciation. Coupled with the penned up demand discussed above, I believe that a vacuum is being created. In the meantime, everybody is wondering when the economy will come out of this recession. The general consensus is that it will not happen until the financial system is working and banks are healthy again. By then, the bottom in the housing market already occurred. There is no way to know the actual bottom until it’s passed. And by then, prices have jumped. Therefore, if you are a buyer, make sure you have a long term plan. Real estate was never meant to be traded (or flipped) like stocks. However, there is no doubt in my mind that this year’s buyers are going to gain handsomely from their real estate purchase in more ways than one.