“This is the time of year to write to the Great Pumpkin“- Peanuts character Linus
“You must be crazy. When are you going to stop believing in something that isn’t true?” – Peanuts character Charlie Brown
Trulia’s able economist, Harvard educated Jed Kolko has been tracking the real estate recovery in four stages. Click here for an explanation of his methodology. Mr. Kolko’s third stage involves tracking the prices of homes to a “normal” level based on price-to-income ratios, price-to-rent ratios and prices relative to their long-term trend. Mr.Kolko recently concluded that home prices were still 5% shy of normal.
I believe that a price/inventory catch-22 as well as poor wage and job growth and higher interest rates will prevent real estate prices from appreciating much further.
Here Comes Gen Y…., Well Maybe Later
Assuming the third stage of the real estate recovery is passed, the last leg is the anticipation that household formation will increase when, during that glorious moment we will see millennials in their million hordes from California to the Eastern shores emerging from their parents’ basements with full time jobs, reduced student loan debt, sterling credit and an interest in and ability to buy homes.
Mr. Kolko admits that this is not happening yet but believes when it does it will represent large pent up demand for housing.
Until we have lower home prices, lower interest rates, lower student debt loads and higher full time employment rates among millennials you can count them out as a factor in the housing recovery.
The waiting begins.
P.S. It’s also quite possible that multi-generational living becomes the new normal. If that happens the cultural urge of millennials to move out from under their parents’ roofs even if it can be afforded, may be significantly diminished. This would sharply reduce any projected household formation growth.
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