The Disconnect Between Home Prices and The Economy

The Disconnect Between Rising Home Prices and the Economy

Real Estate News

Mortgage Interest rates, even though they have risen, are still at historically low levels” – common refrain from those saying the housing “recovery” can continue.

It’s hard to argue with a true statement, but it’s easier to argue against the supposed consequences that flow from such a statement.

Here are three more true statements:

-The labor participation rate is a its lowest in thirty two years. This means fewer people as a percentage of the population are working. One of the main requirements of getting a mortgage is being able to show stable employment and the ability to pay back the mortgage. A smaller percentage of the population is able to do this today than they were two, three and thirty-two years ago.

Wage rate growth has been non existent in the past few years and wages have actually dropped. People with jobs are making less money today than they were two or three years ago.

-Home prices have been rising the past two years. Homes are more expensive today than they were two or three years ago.

Now take these three true statements together and add them to the first and you might conclude:

Fewer people working, making less money, when home prices and interest rates are rising means fewer people can qualify for mortgages and afford to buy homes at higher prices. End of housing recovery.

Pop! Goes the housing bubblet.

Lower prices drive demand not higher prices.

While it may make all the sense in the world to buy a home with a 30 year fixed rate mortgage and lock in a low monthly payment for your cost of shelter, IF you are in a position to do so. The operative term being “if”.

If you had a few million dollars it might also make sense to buy a boat, a Tesla or even a private jet.

If you feel like spending some money, here are a few suggestions:

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