Really, housing only averages the same rate of return as inflation. Of coarse there are bubbles, and busts, but over the long haul, housing will usually “cost” a relatively fixed percentage of what the average household/individual makes. This percentage will fluctuate from time to time, but it is just one of many things that most people (people who live in housing that has monetary value) have to spend money on. This is how it has been for years, and how it will be for years.
There are other things in life that are just as mandatory for survival as owning or renting a home. For those of us that eat or drive, food and gas/energy will take up a certain percentage of our incomes. Health care, consumer staple products, clothing, education, cars/transportation, furniture, and more or less are all costs that most people in life will eventually have to spend money on, just as they do housing or food. Together they all add up to the cost of living. The change or increase in the cost of living is known as inflation. The cost of living will usually go up over time, usually in tandem with incomes.
It would be rare for the cost of housing to remain at such a relatively high ratio to incomes, with the exception of a bubble. This is the current situation that we face. There are so many reasons why we are in this huge deflating housing bubble, and I won’t rehash these, but they are in many other threads here. Bubbles deflate, and usually they over correct. There is virtually no chance that housing prices will stay “this high”. There are only a few ways this could feasibly happen.
A. The lower and middle class of America (think retail, education, service sector, police, fire, blue collar, some sales) gets huge increases in their wages to allow them to afford the current high prices. – this is not happening, most of the rise in incomes is seen in the upper class.
B. The cost of everything else drops and allows us to spend more money on housing. – this is not happening either, food, gas, energy, health care, even consumer staples are on the rise. Virtually nothing is getting cheaper except some tech items. Non-housing costs are rising fast, especially after the massive credit/housing boom, and they will rise further if rates are cut.
C. All of a sudden the supply of homes, land or supplies to build them was running out. We all know the current situation with resale and new home inventory.. it is at record levels and not dropping. There is still plenty of land to build on from Las Vegas to Phoenix to Seattle to Dallas. Inventory, construction supplies, and land are and will be readily available for years and years in this country.
Bottom line is that housing is and will come down in price significantly.
