Is There A Housing Bubble?

Maybe. But not certainly. How could we decide?

The first thing to know is prices move in a particular direction for a reason. Inflation is not important in measuring house price expectations. There are few units sold in a year compared to say, shoes. Having a little extra money won’t change the buy versus rent decision much.

Housing is more affected by supply and demand than it is by monetary policy.

Some of the factors to notice.

Prices follow supply and demand just like everything else.

What are the demand factors?

Look at the demographics:

  • Rate of household formation resulting in the need for a home purchase. Mostly millennials.
  • Look at immigration
  • Look at the rate of final sale. How many people are selling and moving into other accommodations? Generally older people.
  • Notice the type of property people in a given age demographic might want.

Look at affordability

  • Interest rates are low but rising slowly.
  • Other costs of ownership are rising. Energy, maintenance, municipal taxes
  • Wage rates are rising.

Look at supply factors

Look at the ease of building new units

  • Supply chain issues. Some parts are hard to get and expensive when you do find them. Appliances for example.
  • Builders see larger homes as more attractive. They look at the total margin not the number of houses sold.

Look at the cost to build

  • The cost to service a lot is about the same regardless of how big the house will be. Cost to service is a smaller portion of the price of a million dollar home.
  • The quantity of serviceable land is very small and what exists is expensive.
  • New land supply can take a decade.

Other supply and demand factors

  • Look at people moving from large urban centers. It doesn’t matter much if you live in Manhattan or Ithaca if you work remotely.
  • Have you noticed anyone building entry-level homes? 1,200 square foot bungalows for example. Not a single one here. It’s probably the same where you are.
  • Entry-level homes will be fully priced sooner than the larger ones because those that have an entry-level home now will want to move to larger homes as their family grows. When that happens they will become vendors and more vendors suppresses prices.
  • Rate of removal of existing units from the “possibly for sale” inventory. Some hedge funds are buying up residential real estate. Those units are no longer available to buy.
  • Movement of large employers. If one appears, prices will rise because it takes a long time to make serviced land available. If one leaves prices don’t rise and may fall regardless of other factors.

The bits to take away.

The housing bubble that collapsed in 2006 to 2008 had very different supply/demand factors.

There are many variables in any decision. Picking one, like “interest rates are rising” and assuming it will be the cause of some event is risky. The factors in any market are never that shallow

Entry-level homes will be fully priced earlier than the others, because of demographics. Look for household formation numbers. Those may vary locally.

Pay attention to “for sale” inventory and time to sell statistics.

Most macro predictions are nonsense because the marketplace is far more complex than the analysis that creates the prediction.

Look for the relative cost to rent versus buy. Not such an easy analysis as you may think. people ignore many cost variables in owning a home.


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I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don@moneyfyi.com

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