Garrett (garote) wrote,

Paraphrased from the link:

UC California San Diego Economics Roundtable Meeting: The California Economy: Housing Boom or Bubble?

In 2001 there was 1 new house built for each new family in the US. That figure includes immigrants, et cetera. Due to the housing construction boom, we are now in a situation where we have built 2.6 new homes for every single new household in the US. Adding to this imbalance is that we are actually in the midst of a decline in the population growth rate. The population growth slowdown is expected to continue for the next 20 years.

This is incredibly unusual, and completely out of whack. We're being asked to forecast what's essentially an irrational market. Is there going to be an "explosion" at the end of this bubble, like there was in the stock market?

Well, the housing market is not like the stock market. You don't day-trade your home. The fixed costs of buying and selling a house are enormous. People wouldn't want to go jumping from house to house even if they could. So you won't see a downturn in terms of the price, what you'll see is a downturn in transactions.

People will stop selling and stop buying homes. For the next six years, the value of everyone's house is going to stay flat. For the next six years, housing is not going to be a good investment. In addition, construction firms and realtors - the two strongest drivers of new jobs in our economy today - are going to get hammered. So flat is the best we can hope for, while the reality will probably be slightly worse. The only time you see real estate prices fall in nominal terms is when you lose a lot of jobs in the local economy, and that's not going to happen.

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