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We recognize that the market for single family residences (SFRs) in the US is not one homogeneous market but a collection of local markets that move at varying rates up or down in response to local supply and demand.
Notwithstanding, in aggregate, SFRs in the US have responded to the factor of extremely easy money. No down payment or minimal down payment loans, and cash-out refis, have created a huge updraft in real and nominal housing prices which probably peaked around summer of 2005.
You could say that housing prices have responded to a giant inflationary expansion in the FIRE economy in recent years. Perhaps a parabolic increase in the size of the FIRE economy.
Rents as a percentage of the total costs of ownership (TCO) of SFRs has I think been falling over the past 4 or 5 years.
It seems that prices of goods and services, including rents, in the "real" economy haven't yet followed upwards due to the forces of globalization. (This has let corporate profits climb to near-record levels in terms of profits as a percentage of GDP and perhaps has sustained the US stock market rally.)
Now, there are signs that goods and services prices, "real" economy prices including goods and labor, are starting to increase.
Will this affect rents? If rents start to increase, and/or nominal housing prices continue falling, then at some point SFR prices may bottom out.
Nominal wages in the US, which have been stagnant or falling (depending upon what you use as an inflation measure) but may start to bottom out and even go up.
All this will bring inflation home to roost -- no longer confined to assets, but now to consumer prices and wages.
However, unless wages increase nominally, I can't see how rents will increase much.
That leaves SFR prices falling in nominal terms (and real terms even more sharply of course.)
How long will this continue?
When will it bottom out?
In my experience in the late 19802 California real estate bubble, in some areas (including mine), housing prices doubled in two years. They then fell over the next four years to even less than they had been worth before the really big run-up.
It may be helpful to view this in terms of years. In 1987-1990, houses doubled in some neighborhoods.
In 1990-1995, houses fell to below 1987 prices.
The more recent run-up in SFR prices in the US has in many areas been not quite so parabolic. It has taken longer to run up and it may take longer to run down. In my area we are back to 2004 prices and perhaps we will end up at 2000 prices when all is said and done. Or perhaps not.
Will nominal wages increase so that rents can increase? Are there other supply-and-demand factors that determine rents?
For owners or SFRs and apartments to have pricing power, I argue that it's nominal wages that count.
When will it again become a favorable time to buy a house, assuming you don't want to buy an asset with leverage that is falling in value?
Notwithstanding, in aggregate, SFRs in the US have responded to the factor of extremely easy money. No down payment or minimal down payment loans, and cash-out refis, have created a huge updraft in real and nominal housing prices which probably peaked around summer of 2005.
You could say that housing prices have responded to a giant inflationary expansion in the FIRE economy in recent years. Perhaps a parabolic increase in the size of the FIRE economy.
Rents as a percentage of the total costs of ownership (TCO) of SFRs has I think been falling over the past 4 or 5 years.
It seems that prices of goods and services, including rents, in the "real" economy haven't yet followed upwards due to the forces of globalization. (This has let corporate profits climb to near-record levels in terms of profits as a percentage of GDP and perhaps has sustained the US stock market rally.)
Now, there are signs that goods and services prices, "real" economy prices including goods and labor, are starting to increase.
Will this affect rents? If rents start to increase, and/or nominal housing prices continue falling, then at some point SFR prices may bottom out.
Nominal wages in the US, which have been stagnant or falling (depending upon what you use as an inflation measure) but may start to bottom out and even go up.
All this will bring inflation home to roost -- no longer confined to assets, but now to consumer prices and wages.
However, unless wages increase nominally, I can't see how rents will increase much.
That leaves SFR prices falling in nominal terms (and real terms even more sharply of course.)
How long will this continue?
When will it bottom out?
In my experience in the late 19802 California real estate bubble, in some areas (including mine), housing prices doubled in two years. They then fell over the next four years to even less than they had been worth before the really big run-up.
It may be helpful to view this in terms of years. In 1987-1990, houses doubled in some neighborhoods.
In 1990-1995, houses fell to below 1987 prices.
The more recent run-up in SFR prices in the US has in many areas been not quite so parabolic. It has taken longer to run up and it may take longer to run down. In my area we are back to 2004 prices and perhaps we will end up at 2000 prices when all is said and done. Or perhaps not.
Will nominal wages increase so that rents can increase? Are there other supply-and-demand factors that determine rents?
For owners or SFRs and apartments to have pricing power, I argue that it's nominal wages that count.
When will it again become a favorable time to buy a house, assuming you don't want to buy an asset with leverage that is falling in value?
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