Is Housing Bottoming Out?

On the surface, it looks like it:


My main caveat here is that the United States is — for many reasons including geopolitics, demographics energy, monetary policy, etc — in a completely new historical period, so it is plausible that we are moving toward a new normal.

The persons-per-household numbers have remained low, even in spite of the house price slump, suggesting there is no latent surge in demand waiting to burst forth and pick up prices:


Most worryingly, prices have kept falling even in spite of the fact that there is very little building:


So while prices are falling to historic lows it is difficult to say where demand will come from. Certainly —and wrongheadedly, because America is relatively underpopulated — America does not appear willing to liberalise immigration laws. In nominal terms, house prices somewhat stabilised due to the post-2008 money printing operations. But in terms of purchasing power (i.e. in ounces of gold, barrels of oil, calories of food) there does not seem to be much reason to believe house prices will be rising any time soon.

19 thoughts on “Is Housing Bottoming Out?

  1. What is the state of the UK housing situation Aziz? Is housing here overvalued (compared for example to gold)? Do you think prices will continue to fall? I have to confess almost complete ignorance in regards to housing. If house prices are a function not of what people have recently paid for a house, but rather what people tomorrow will be able to afford it seems that housing must fall.. in pound denomination and in value

    • I did an article on this last year:

      The UK has since 2008 practiced very strong reflationary policies in regard to housing, but also more significantly in the preceding years has prevented the development of much new housing (both private and especially council) which has kept prices artificially inflated so that boomers can enjoy home equity-fuelled consumption and cruises in the mediterranean while their children and grandchildren continue to struggle to get on the property ladder at all. Housing priced in wages in the UK is still very high. Now, the UK has a much higher population density than America, so perhaps that is to be expected, but nonetheless I find the housing shortage in the UK to be very socially and economically damaging, and by definition a regressive policy that is hurting the younger generations a great deal, while benefitting both older generations who bought at a much, much lower wages-to-price ratio, as well as landlords who can effectively charge whatever rent they want (as councils have in the past paid in housing benefit the going market rate). The bottom line is I believe planning laws need to be deregulated (it appears as if Cameron is willing to do this) and more council housing stock needs to be built to combat homelessness and overcrowding in inner cities.

      • Thanks, I’ll check out your previous article. What would you say to someone looking to buy their first house at the moment (my sister)… better to hold off? Something tells me that now is not the time to be loading up on debt.. even if rent rates are high.

        • I am not a financial adviser, so take what I say with a pinch of salt. Personally I expect UK housing prices — in gold terms, in wage terms, etc — to go much lower. The problem is that rent is a real bugger. And in nominal terms (due to money printing) house prices will not be falling much; the fall will come in inflation. If we end up experiencing very large inflation over the next 20 years getting a mortgage right now would be a very good idea, because that will devalue the mortgage. In an ideal world I would live rent free and invest in gold and silver, but if living rent free is not possible there are much worse times to buy a house.

        • Well gold and silver holding is my plan; unfortunately I do have rent to pay. I’m not in a position to buy a house at the moment anyway so in my case I have little choice. I have considered the case of large inflation or even hyperinflation and although it seems very possible.. my thinking is that if that happens then the ‘big guys’ lose.. i.e. as you said homeowners get to pay off their mortgages with a few days wages and the mortgage-lenders get screwed… the problem with that is the ‘big guys’ never lose! I have heard the case for a big deflation first in which debt-holders would get wiped out and creditors would clean up.. then followed by the massive inflation.

  2. This is not investment advice either, but I see the UK market similar to the Australian market. Housing will crash further all around the Western world. With lower birth rates, and downsizing by the baby boomers, you will see a lot of property offloaded.

    Unless immigration is ratcheted up (this is a political issue with high unemployment), I don’t see increased demand. The property crash has broken the perception that property always goes up, so people will be more cautious bidding.

    Morally, a house is a home, not a line of equity credit, nor an investment. In the end morals win out, because people get upset and then vote in politicians who appease with legislation that would see property being offloaded.

    Basically legislation was changed 10-15 years ago that helped grease the delivery of all that freely printed cash, assisted by Mortgage Backed Securitization. This was intergenerational theft, and now the people have woken up to this. Politicians who passed this legislation knew high house prices would be the result. If you are struggling to afford a home and raise a happy normal stress free family, take it up with your local legislator.

  3. Hi,

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      • HI John,
        Thanks for providing me the opportunity to write a guest post for your site. I have mailed you a very interesting article at azizonomics(@)aol(.)co(.)uk

        Please check out the article and I hope you will like it. Please let me know your thoughts. I will be awaiting for your positive response.
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    • The Silicon Valley is a huge anomaly in almost all respects. I’ve stayed there a lot (Sunnyvale, Palo Alto, Mountain View), my Dad lives there. By the way, though, priced in gold even Silicon Valley real estate has dropped off.

    • Of course a beautiful abode in the heart of Technology Central, will always be in demand from cashed up workers in the last true booming industry in the USA.

      The best graph is the cost of cubic metres of space for housing trailers (Trailer Park pricing is another good measure). When they drop, the economy is booming.

  4. Banks are lending to anybody with a good credit profile, provided they borrowers are putting a decent 20% downpyment

    I note the rate of interest a poster “Bluju2” says they are paying – 5.5% This is high considering deposit savings rates are beo 1%. That is massive profit 4.5% for the banks. Either banks charge 1-2% max margin on deposit rates or raise the rate on savings. Obvioysly these massive profits are repairing the losses. This is a hidden cost on the economy.

    “Bluju2 22 – I have an excellent score (over 830) and over 20% in equity. Financed currently at 5.5% for 10 years left on a 15. I wanted a refinance at 3.5% I tried under HARP1 and HARP2. No-go. Both banks insisted on appraisals even though HARP2 rules state that the results don’t count toward the refinance. I gave up on that home and will enjoy the tax write0ffs on a 2nd home. It costs me minor money and damage to credit report each time I “work” with the banks. I also suspect appraisal companies are getting “kick-backs” on bringing in low, low appraisals.”

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