Housing and bananas
For many months now, barber shops, grocery store checkout lines and internet blogs have been abuzz with animated discussions of real estate prices. Bears have been warning about an impending crash, while bulls keep crowing about how every day that passes piles on their equity.
Being somewhat of a bear myself (and no economics expert), I find the run-up in real estate prices a little alarming, especially in light of ongoing interest rate hikes and rising inventories, and I fear a serious market correction is going to happen between now and mid-2007 in most markets. Consider the following:
- Condos that sold for $150K in 2000 are now listing at over $450K, i.e. a 200% price increase (in California).
- In the same period, 1 lb of ground coffee went down about 10%, a dozen large eggs went up about 50%, 1 lb of bananas can be had for just about the same price, and even gasoline only went up 78%.
- Source: Bureau of Labor Statistics Data, Jan 2000 to Jan 2006.
I realize real estate markets are not measured by the same yardstick as consumer goods, but given the outcry over a 78% increase in gasoline prices, one might think a 200% increase over 6 years would qualify as outrageous, speculatory and non-sustainable. And while current owners might bask in their equity-rich glory, bears like to point out that home equity ain’t money in the bank-it’s only imaginary money until you sell your house. As a reader posted on the housing bubble blog, “Debt is a fact. Equity is an opinion.”
Other facts also point to the non-sustainable nature of the current market:
- California’s housing affordability index stood at 16% in June, 2005
- Source: California Assn of Realtors
- Source and explanation: National Assn of Realtors
- Source: RealEstateJournal
- Source: San Jose Mercury News
An obvious silver lining is that the nation’s obsession with real estate has given rise to a lot of innovation from real estate agents and brokers and technology folks: trulia.com, of course, but also housingmaps, zillow, propsmart, redfin, homethinking, RENotebook, johnlscott, sundaydash, and dozens of other services that make real estate searching and valuation easier and more accessible to everyone. So whether it’s a seller’s or a buyer’s market, it’s certainly a great time to be dealing in real estate on the internet.
I’d love to hear what Trulia users think about the current housing market. Is there a bubble? Is it bursting? Is your market immune? Am I completely off-base? Let us know.
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