NPR had a good discussion this week about the current status of the housing market. We have heard over the last couple years about all the decisions leading up to the collapse of the housing market. What’s in the past is history for now, and good learning lessons. But we are encountering a whole new situation of unknowns to work out. There are so many factors in this topic, it will make your head spin. These are in no particular order:
- The reduction of down payment requirements allowed many people to buy before they had saved the money needed. Now that the trend is reversing, it will take longer for people to save a minimum down-payment to make a comfortable purchase.
- It’s harder for the average person to save for a down-payment due to decreased wages compared to the increased cost of living. The average price to average salary ratio for a geographic location is used to determine affordability of housing for that region. This ratio has significantly increased throughout the US adding to the difficulty of saving for a down-payment.
- Baby boomers make up a large part of the population and are approaching retirement. They will be downsizing their homes, or selling rental property to enjoy their retirement, adding to the supply of houses out there. This is an example of a fundamental problem with our economy which is based on growth (a larger group coming up to support the top of the pyramid).
Maybe I’m pessimistic, but I don’t see how we are headed for the right track in the housing market. Unfortunately, home ownership is another example of a means of wealth being taken from the average citizen and given to the rich.
Today’s article (29 March 2011) describes how the Case-Shiller U.S. house price index shows a discrepancy between home prices and general inflation that can take years to correct. Home prices may not drop off in the steep decline of 2007 and 2008, but it will take years for inflation to catch up with increased home prices to increase their value beyond today’s values.