They say they don’t want to try to “predict” home prices, saying “if you’re a flipper, we’re not talking to you!”
Instead, they are trying to predict rent prices. Ummm… what’s the difference really?
They may have forgotten that this is pretty much a zero sum game too. If we have record home owners in this country, then where are all the renters going to come from to justify the rent they think they are going to get on a specific home? What happens to their model if rent prices sink (relatively speaking)?
There are many more points, but who has time to waste on flawed logic.
This article basically parrots the “New Paradigm” model; prices will reset and start a new trendline from this point forward because the old trendline no longer applies. We will henceforth have new relationships between pricing and the underlying fundamentals such as supply, effective demand, wages and population. People will henceforth always be willing to spend in excess of 50% of their gross income for their housing, even when there is no short term upside.
Not.
They used so many assumptions it is mind boggling. They use the historical average increase of 3% but then they apply it to the current price spike rather than to the trendline upon which that average was based. Duhh. They make assumptions about financing continuing on at sub 6% rates when we have always known that to be an historically low rate that is inaccurate as of right now. They make assumptions about price stability that we can now see have been proven to be unfounded.
In a nutshell, if I ever submitted an income forecast for an investment property that relied on so many unsupported and historically unfounded (as in, demonstrated to be false) assumptions my license would be subject to discipline from the state. For the NYT to quote this superficial and incomplete analysis from some minor league academic lightweight in their article puts them on the same level as any local rag.
I’m enjoying the spirited responses. I’d be interested to hear your insights on how the “reversion to the mean” phenomenon could play out in our (San Diego) market.
Rich, an alternative way to get back to the mean would be for prices to be flat (at the current levels) for a long time. Does residential real estate do that? Cal
.
