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Saturday, June 15, 2013

Maybe the real estate market IS back

Today in my email is a sign that the real estate market may be back.


You’d think there would be plenty of brokers left over from the early 2000’s bubble, but then this is about making money on a school, not some shortage of brokers. Unemployment is still high, real estate is a common second career, the entry requirements are low, and it can be lucrative if you are good at it.

Long term, the trends are negative

Long term, though, it’s hard to see residential housing coming back strongly – and that may be a good thing.

There are a LOT of baby boomers, and clearly over the next 25 years there will be a LOT of baby boomers selling homes either because they move into some place smaller, or move into the next world.

There are fewer people in the generations behind them, and those behind them are likely to have substantial debt (e.g. from student loans) and probably less of an attitude that housing is a superb long term investment.

More sellers than buyers means downward pressure on prices long term.

High housing prices aren’t good

That’s not necessarily a bad thing. I live in a church-centered neighborhood, and the real estate boom was ruinous because young families were prices out of the local market. So, they moved farther away. That, combined with the secular trend of people becoming more secular creates long term problems for the survival of the church society. It also means that I know fewer of my neighbors and have less in common with them and are less likely to see them on a regular basis, so there’s a decline in social capital. 

From my point of view, high prices for housing are a negative thing.

In fact, it’s very difficult for me to understand the media bias in favor of thinking rising housing prices are a good thing. Sure, if you are a home builder higher prices mean you can built more homes. Societally, is more urban sprawl a good thing? Sure, if you are a broker high prices are good because 6% of a bigger number is a bigger commission, and rising prices indicate a more active market. Otherwise, high prices means housing is hard to afford and chews up a larger percentage of the paycheck.  For buyers, high prices keep them out of the market. For sellers who plan to give in their homes until they die, housing prices don’t matter (relative prices matter, of course, because of property taxes). For sellers planning on using that equity to trade for a smaller house, there’s a gain – but if they have two children, their gain is their childrens’ double loss.

Similarly, we don’t think of rising medical costs as good, even though that creates jobs in the medical care sector and leads to the building and remodeling of hospitals. And we don’t think of rising college tuitions as good, even though that leads to expansions of colleges.  It just seems to be real estate where we cheer higher prices.

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