For the past several months I have been hearing from my colleagues, consumers, and “talking heads” on the business channels on cable, that there is a coming “correction”, “downturn”, and even the dreaded “R” word; Recession. Bollocks! I say. Has there been a relenting of the continued pressure to increase prices? Yes, there has. However, that does not mean that prices are in decline, or will be any time soon.
Recall the basic laws of economics; Supply and Demand. We still have a tight supply and demand is very strong. In many parts of the country, and especially in most of New England, there is much less than six months of supply. (Six months of supply is considered to be “Balanced.”)
The reason that the pressure to push prices higher has relented a bit is that inventory has increased slightly. So if the level of inventory went from 3.5 months to 4.4 months, there are more houses for buyers. However, we are still far from a “Balanced Market”.
How do we know that this Demand will continue if the Fed raises interest rates? The reason that higher interest rates will not be detrimental to the real estate market is that REAL wages are increasing and new job creation is outpacing forecasts.
There were 230,000 new jobs created in September versus a Wall Street forecast of 180,000. Additionally, demographics support continued strength in the housing market. The number of millennials in the “Purchasing Pocket” ( most people buy their first home between 30-34 years of age) has been and will continue to increase.
This sustained demand and the continued increase in wages bodes well for the housing market. If the housing market is healthy that will create a thriving economy at-large because many more people will see increases in their income. Every time a new house is sold $60,000-$75,000 of income is injected into the local economy. That will help legions of small businesses.
Coming real estate “Bust”?…I think not. The data doesn’t support that claim.
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