There are some considerations that rarely are mentioned. First, the past 20 years have seen increasingly reduced tax burdens, coinciding with increased federal and state spending that has been financed with ever increasing cheap money and personal and government debt resulting in bubble driven economies. Using these years as a baseline, should inflate the ratio of house-to-income price, as more dollars become available to each individual as a percent of income.
Although the governments are currently supporting the housing market, that will eventually slow. We can’t, IMO, continue those actions forever. But in the interim, we have replaced personal debt with even more government debt. That’s almost certainly not sustainable.
Eventually the piper must be paid. We are starting to see some significant downsizing in state and local governments, which will have a tendency to depress the economy.
Most economists agree that higher taxes will be forthcoming reversing the trend of the last 20 years. The absolute amount is anyone’s guess, but to be sure, there will be fewer dollars in the hands of consumers, resulting in a negative effect on the economy.
My best guess is that the economy follows the Japanese model, drifting marginally lower year after year, with the housing market following the lead of the general economy.
