Price Tolerance Levels Get Tested In Math Of Household Growth
Market imbalance -- a chronic shortage of housing production -- means households lack leverage to bring prices back to earth.
As a turn of phrase and a filip of logic, it's hard to resist its appeal.
The cure for high prices is high prices.
Home prices are another story.
Not because Econ 101 gems of supply and demand wisdom do not apply, but because they apply to known, structural imbalances that distort normal calculations.
Supply is, and has been, constrained -- chronically, numbingly, and, for some number of years, acutely.
When population growth, coming-of-age into adulthood, household formations, and family formations outpace household earnings averages and vastly outpace housing production, the cure for high rents and purchase prices doesn't appear to be high rents and high purchase prices.
Bloomberg's Alexandre Tanzi writes:
The median national rent climbed 9.2% in the first half of 2021, according to Apartment List. While part of the increase reflects a bounce-back in prices that dropped earlier in the pandemic, the real-estate firm says rents are now higher than if they had stayed on their pre-Covid track.
And they’re still rising at a rapid clip -- just at the time of year when the largest number of lease renewals fall due, locking millions of tenants into bigger monthly bills. Surveys by the New York Fed and Fannie Mae suggest renters are braced for further hikes of 7% to 10% in the coming year.
Higher rents are the kind of price increase that’s hard to reverse -– unlike many of the ones that have accompanied the economy’s reopening, from lumber to used cars.
Further, here's CoreLogic's May U.S. Home Price Insights analysis, looking both backward 12 months and forwards by the same timeframe.
Home prices nationwide, including distressed sales, increased year over year by 15.4% in May 2021 compared with May 2020 and increased month over month by 2.3% in May 2021 compared with April 2021 (revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results).
Forecast Prices Nationally
The CoreLogic HPI Forecast indicates that home prices will increase on a month-over-month basis by 0.8% from May 2021 to June 2021, and on a year-over-year basis by 3.4% from May 2021 to May 2022.
Four out of five consumers now signal strongly that housing affordability is a problem. One out of three of them says they'll wait for "the cure" to high prices.
How long will they need to wait?