Given I'm a veteran Realtor(r) one would expect me to talk a lot about housing and even promote it "as a got to own it" like so many within this industry. I recently read an article from another Realtor(r) titled "The Housing Revolution" and comparing what today's robust real estate market means to America "the engine that will drive our U.S. economy." He concludes his article with "I would like to think we are not experiencing a housing bubble but actually a housing revolution" with a job growth creation comparison to the Industrial Revolution.
OMG, that is not the way to go about creating jobs nor building an engine for driving an economy forward! This is quite the opposite and is more of a broad characterization of a housing bubble forming than not. Even if not a bubble that deflates suddenly but a housing market trend that is very troubling and certainly not sustainable regardless of how far below we are still from 2006 home prices. Why? Well, housing is not a sustainable job creator and certainly not the best use of today's available funds for investing in the future of this country. I would rather today's cheap dollars be spent on investments in manufacturing, mining, technology, agriculture and many other real job creators. Housing is dependent on people working and having incomes to pay mortgages from non-housing related jobs. We need new and expanding industries not more new houses!
Without real jobs housing will become suspect to deflationary pressures that can get exponentially worse with each housing dollar malinvested. This huge misallocation of financial resources spells big trouble to me...not real economic growth. This path of rising home prices is not sustainable because it's not based on created jobs but jobs created. A colossal difference! Another pyramid scheme or Ponzi scenario for that matter that will adjust once again when the foundation for this economy is exposed for the lack of real employment support it has. Scary, but housing has been monetized by the government once again and that means trouble as it did leading to the Great Recession. Housing is evolving into just being a place to live not a place to be heavily invested financially like the last fifty something years. All of this might make "renting" the new American dream!
All of these new housing construction jobs, retail and service jobs (like mortgage officers, real estate agents, escrow officers, inspectors, etc.), government jobs and many other industries feeding off new construction and increased consumption due to improving housing prices tend to expand/contract as real estate markets expand/contract. So, anyone within those industries buying today really shouldn't as a large percentage of these jobs are here today gone tomorrow. They're cyclical jobs...we have cyclical housing markets so correspondingly cyclical job markets.
But, don't shoot the messengers (all those newly employed or previously under-employed "housing related" persons) for buying! The biggest culprit in this pyramid scheme is the U.S. Federal Reserve. By driving interest rates to historic lows and printing money to purchase U.S. Treasuries and mortgage-backed securities they've effectively invigorated an economy with easy money flowing to hard assets not otherwise worth holding (except for a lifestyle argument). Reminds me of folks using the equity in their homes as ATM's back in the day except now the bank is giving you the cash over the term of your mortgage. How's that for the government doing this one better!
You see, lower mortgage payments on an artificially inflated risk asset means you get to "take some ATM cash out each month" through reduced mortgage payments and when housing declines you get the same whether you have equity or not. Sadly, it has convinced many with cash saved in money market, CD's and other liquid accounts to follow along in the re-inflation of real estate prices by buying now. We all know what happens next when assets are artificially inflated.
Basically, no one wanted to buy those assets then, so why do they want to buy them now? Even with lower interest rates than what drove the market to the tipping point previously should that be the reason to buy especially in a jobless recovery? If an asset is falling in price, the government's response is to re-inflate it with cheap money. Makes you wonder why you hold anything of value that can be so easily monetized by the government.
Cheap money is twofold too on housing: low interest rate mortgages for homebuyers and conversely cash investors drawn to housing seeking higher yields not available elsewhere. The Great Recession brought about a huge downturn in real estate prices even when interest rates by historical standards were already very low. We're now not anywhere better than what was done back then except now we have the illusion of a safer investment as lenders tightened lending standards due to increased government regulation. Unfortunately, not the case here as U.S. Federal Reserve monetary policies are an indirect unwinding of such controls. I see the evolution being deflationary on real estate prices for the foreseeable future despite all the efforts of the government to otherwise promote sustainable long-term inflation!
My dad once commented, be careful what you say as you might turn away real estate business talking "bad" about buying real estate. An interesting thought. My response was "it's much better to take the self-interest out of the equation and guide people into what is right for them than what is right for me." Let them make the decision to buy or sell based on a lifestyle desired not based on a market bottoming or peaking to earn a commission. Besides, there are always one of each on any transaction in any evolving economy, up or down.
