What If Housing Declines For A Generation?

April 12, 2012 07:52

A strong case can be made that the fundamental supports of the housing market– demographics, employment, creditworthiness and income–will not recover for a generation. – Of Two minds


By Charles Hugh Smith at Of Two Minds


It can even be argued that housing has lost its status as the foundation of middle class wealth, not for a generation, but for the long term.


Rising rates of homeownership require five conditions:


1. Favorable demographics: a cohort of potential buyers that is larger than the cohort of potential sellers.


2. Rising household formation rates: an expanding population does not necessarily translate into rising rates of household formation. If the number of people per household goes up, then the number of households can plummet even as population expands.


3. A large cohort of creditworthy potential buyers: that means buyers with savings, buyers with sufficient income to pay the mortgage and buyers with low debt loads.


4. An economy that generates rising incomes to support homeownership.


5. An unshakable belief that owning a house is a favorable and secure investment that will rise in value in the decades ahead.


If the first four conditions have eroded, then the belief in the permanence of a rising housing market will also erode.




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