Are We in a Housing Market Bubble?
Many of the housing market forecasts I have recently covered are positive on the housing market. They believe the housing market will remain strong for the foreseeable future. I thought it would be a good idea to cover a forecast on the other side of the aisle. In this video we discuss a recent MarketWatch article by Jonathan Burton, in which he interviews David Rosenberg. Rosenberg is the president and chief economist of Rosenberg Research & Associates, inc. He is a widely followed economist, and in the article he shares his opinions on the housing market and financial markets.
David Rosenberg is a widely followed economist and is the president of Rosenberg Research & Associates Inc. He sees evidence that the economy is already slowing. For him, this makes the federal reserve’s timing on rate hikes questionable and amplifies his call that we could be going into a recession. He believes the only way for the federal reserve to curb the current inflation will be through a recession. It’s going to take demand destruction to get inflation down.
He goes on to say that the housing market is in at least as big a bubble as the stock market. We’ve already taken out prior bubble peaks in the late 1970’s, mid 80’s, and mid 2000’s. He believes we are going to have anywhere from a 20% – 30% bear market in residential real estate, and that’s being charitable. To quote him, he states “Relative to overall inflation, housing is overvalued by 25%, and 27% relative to wages. Home prices relative to residential rents are 25% overvalued by the standards of the past. A single-family home now absorbs more than eight years of Americans’ personal income, which is almost 50% higher than the average going back to 1968. In a normal market it takes five years of income to buy a single-family home.”
Rosenberg also makes some comments about residential real estate in terms of inflation. He states “Historically, home prices go up one to two percentage points above the inflation rate. Right now its going up 12 percentage points. Residential real estate is a great hedge against inflation. But the excess is practically unprecedented.” He goes on to say later in the article that “housing is the most interest-rate-sensitive segment of the economy. Each Fed induced pricking of the real-estate bubbles also played a big role in the eventual recession when you consider the importance of this sector and its multiplier effect on the broader economy.”
Below are a few interesting charts related to housing market values:
Stocks vs. Home Values: https://www.longtermtrends.net/stocks-to-real-estate-ratio/
Home Values vs. Median Income: https://www.longtermtrends.net/home-price-median-annual-income-ratio/
Home Values vs. Inflation https://www.longtermtrends.net/home-price-vs-inflation/
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By: Tim Hamilton
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