Housing Market: Are You Bullish or Bearish?







I have read a lot of articles on the state of the housing market; most seem to have a bullish perspective. This is in spite of indicators that the U.S. economy is not doing very well. You could listen to the official government data on inflation or unemployment and think we are doing just fine. Those numbers are just so much fantasy. For example, while the "official" unemployment numbers are relatively low, the number of people employed is also the lowest in about 3 decades. Behind all the numbers, you will find more people employed part-time and more people employed at lower wages.

FRED housing

This chart is single-family housing starts, indicating a level about the same as 1980. Total housing starts indicate a similar low the past few years. Barclays analyst Stephen Kim makes several observations about this.

"Particularly alarming to us is when we hear that 'housing has lagged' the economy, or that housing demand is 'slow and steady...housing doesn't lag anything — it's a leading indicator; and just because housing is slow doesn't make it more steady or less cyclical, it's just slow."

He makes the observation that the following may hold back housing for some years: slow wage growth, very high student debt, slow expansion of credit, a change in the view of home ownership among Millennials, and a shortage of construction labor. Add to these concerns are the fear of a stock market crash and the pressure on earnings of large-cap companies due to the strength of the dollar.

In the end, however, my perspective is that you need to pay attention to housing markets at the city level. The general market may trend one way, but, as an investor, all you really care about is what is happening to housing prices in your market (city).

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