Remember when we were talking about boom buyers needing staying power to ride out the cycle? Many of those buyers are now trapped in those homes by the equity deficit. They aren’t going anywhere because they can’t go anywhere. They can’t take a job in another town, they can’t move closer to their parents, and they certainly can’t afford to get sick or lose a job or go back to school or get a divorce.
Everyone assumes that at the end of this cycle the next cycle will reach the same prices, at which point these peak buyers will finally be free to move on without financial loss.
What if that assumption (next time will be as good as this time) doesn’t pan out? Just as society has had to come to terms with the realization that at some point the next generation will not do better than the one before it, maybe we should be considering whether there’s an upper limit to how much a residence will sell in relation to wage and population trends.
The 2005 price spike was 3 times larger relative to the long term trendline compared to the 1990 spike. What if the 2015 spike only reaches to equal that 1990 spike? What if the former $600,000 house declines in nominal pricing to $300,000 and then only increases to $400,000 the next time around? There isn’t anyone who can say what interest rates and employment are going to look like 5 years from now, let alone farther on down the line.
I seriously wonder how many of the 2005 buyers have considered the possibility that they could be stuck in that house for 20 years? And further, how many people can successfully go that distance?