Housing Recovery Requires An Employment Recovery

www.brokerforyou.com

It’s amusing to read  the prognosticators repeating the industry party line of a San Diego real estate market bottom and  to buy now before one misses this great opportunity. Are the ‘talking heads’ just overly optimistic, espousing on unfounded hope, lies, or just ignorance?

The key to long-term house prices was, and will remain, incomes. Long-term, buyers can afford about three times income, assuming they don’t have too much other debt. Discussions on how much prices have dropped (Gee, it’s down 50% so that MUST mean it won’t fall any more!) are not of great interest if that’s all there is to the discussion.

Unemployment continues to collapse (-250k jobs is horrid, though merely less horrid than -600k jobs). Lending is tight. Consumers are still heavily in debt.

Let’s assume we get growth in 2012. Will the Fed start raising interest rates by then? Probably. If the deflationary forces of contracting credit abate and the inflationary forces of printing start to take hold, we could see rates rise sharply from 2012 to 2020. What will happen to house prices with mortgage rates at ten to twelve percent??