Should Housing Prices Be Higher?
By Peter Miller
The real estate marketplace must be doing well. The numbers from many studies point higher, perhaps the best example is the claim by the National Association of Home Builders that 274 metro areas saw rising home values in March.
And yet it’s fairly clear that much of the public does not have a sense of elation when looking at the housing sector. A study by Hart Research Associates for the MacArthur Foundation shows that 58 percent of the public believes we are in the middle of the housing crisis and another 19 percent actually feel that the marketplace will get worse. Fifty-five percent believe that banks are more likely to foreclose today than 20 or 30 years ago.
The conflict is that on the one hand, home values across much of the country are rising, while on the other a large proportion of the population believes that the housing sector remains unsettled — a questionable investment option.
The latest jobs report hardly helps. It shows that employment “increased” by 88,000 jobs during March, a strange number given that 496,000 people left the workforce. If jobs equal the ability to make mortgage payments then it is little wonder much of the public believes the housing crisis never went away.
For much of the public the housing crisis has never stopped, it’s been a financial fact of life since 2007 when home prices hit their peak.
There surely is real estate demand, something that should pressure values higher. The population has increased from 301.6 million people in 2007 to 315.6 million today. Where are we putting those additional 14 million people? New construction has certainly not kept up.
Much has been made of rising home values during the past year. The National Association of Realtors says February home prices rose 11.6 percent when compared with 2012 and yet home values remain more than 14 percent below the 2007 peak.
Interest rates are near historic lows, a huge volume of short sales and foreclosures remain available at discount, and home values have yet to recover from the levels seen in 2007. Given such factors it’s surprising that homes sales are not more brisk and property values are not higher.
Plainly, a big factor that holds back both the housing market and the economy is public wariness, a view that while the economy may be growing it’s not growing for everyone.
It’s a view which is true. Even as the stock market rises to new heights household income is receding.
“Median household income,” according to the Census Bureau, “was $50,054 in 2011, 1.5 percent lower in real terms than the 2010 median, 8.1 percent lower than the 2007 median of $54,489, (the year before the most recent recession) — and 8.9 percent lower than the median household income peak of $54,932 that occurred in 1999.”
There is a factual basis for the public caution we now see with the housing sector. Interest rates are great, homes are selling at bargain prices, the population is growing and yet wallets are thinner. If we finally want to top the home values last seen in 2007 it’ll take a lot more jobs, income and financial stability than we see today.