Northern Virginia Real Estate
Real Estate Housing Bust
Submitted by Steve on Mon, 2006-02-13 00:46.
With the growth rate for home prices starting to slow, now may be the time to ponder what a bear market in real estate may bring. A recent study by two econosmists at Goldman Sachs provides some answers.
For now , Prices are still clibing over all. The average home price in the nation rose 7.71 percent in the 12 months ended in march.
In nominal terms, United States home prices are up 60 percent since 1995; in real terms, adjusted for inflation, they are up 37 percent. viewd historically, home prices are up twice as much now as they were in the bullish real estate markets of both the mid-1970's and the 80's.
As a percentage of disposable income, home prices are more than 18 percent above the long-term average. Prices exceeded that average by only 4 percent in the 1970's and 8.5 percent in the 1980's boom.
One risk that looms large is that United States policy makers would have few tools to cushion the fall if a housing decline gained real momentum. Interest rates are already so low and fiscal policy so loose that little could be done to ease the pain. This is one of a series of risks and imbalances that suggest there has been a price to the low-interest-rate policy that led the recession to be much shallower than it might have otherwise been. Fiscal and monetary policy are booth already fully tuilized. If things go wrong from here, the U.S. will find itself in a more fragile position.
*** This data is from July of 2004. Housing prices have almost doubled since then so all the data and assumptions above should be magnified accordingly to reflect the increase.
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