The supply side of the law of supply and demand is working. Low prices caused supply to be removed from the market over the past year. Prices have not risen enough yet to stimulate supply enough to reverse the recent price uptrend.
Employment markers continue to show modest growth, with approximately 1.4 million full time jobs added in the past 12 months, versus just 750,000 housing units started.
The supply of existing houses on the market has been radically reduced, while builders continue to build, but the pace of new construction is below the increase in demand. That means the market will continue to tighten as long as the number of full time jobs continues to grow.
The market has also been benefiting from capital flight from Europe and China. Canadian and South American buyers are also active in Sunbelt markets. This particularly helps major coastal “glamour” markets. The difference between the performance of those markets and central heartland markets is night and day.
The price data is unequivocal. Prices are up significantly over the past year, with gains of 5% to 10% depending on the measure.
As I wrote in June, my guess is that as long as European, South American, Canadian, and Chinese money continues to flood into the US, and as long as full time employment continues to grow modestly, housing prices will continue to surprise to the upside. But housing is local, and whether you benefit or not depends on where you are.
My primary concern in this analysis is the impact of the performance of the housing market in the aggregate on the financial system as a whole. Housing collateral is a critical component of the system, and it is important to understand how it fits into the big picture. This report gives, charts, details and clear analysis to give you that perspective.
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