The Biggest Housing Bubble Ever?

Fred Dattolo reports:

Until 1995, housing prices largely kept pace with inflation. In the last nine years though, home prices on average have spiked 35 percent after adjusting for inflation. In some areas (mostly coastal cities) home prices have skyrocketed by incredibly higher margins than that. In San Diego County, for example, the median price of a home is now $472,000. (That means that half the homes sell above that price and half of them sell below it.) That represents an increase of 129 percent in just five years! Yet the county’s median income, at $52,000, has gone up only by about 11 percent during that time.

On the national level, the average house now costs 3.4 times as much as the median family income—a new record—19 percent above the average that stood for a quarter of a century between 1975 and 2000. Home prices cannot perpetually rise faster than incomes. Since they have for four years now, it suggests that a bubble has formed and prices would have to drop substantially to return to the average long-term ratio.

Another indication that homes are overpriced is that the real costs of owning compared to renting have diverged dramatically in the last few years from the long-standing normal pattern. If demographic forces were driving the demand for housing, the surge in housing would be reflected in both the housing and rental markets. But that is not the case. There is plenty of housing available on the supply side of the equation. Rental vacancy rates hover around 10 percent, the highest since the Census Bureau started recording the statistic. In the downtown areas of some major cities, rental rates have been declining since 2001.

This is one of the best overviews of the housing bubble today.Remember interest rates will have to go at least 200 basis points above inflation in the near future.You can count on that.Read the whole article.