This chart shows the total residential real estate assets divided by the total disposable personal income (through the 4th quarter of 2007). It is an update to a previous chart as linked below.
In order to reach the exponential trend line (assuming we revert to the mean), real estate prices must come down and/or total personal disposable income must go up. If total personal disposable income actually comes down (say unemployment rises), then real estate prices must come down even more than implied on this chart.
It really doesn't look to me like we're anywhere near the bottom yet.
There's also the question of why there is an exponential trend line in the first place. There wasn't an upward trend when we were on a gold standard (through 1971). Aren't excessive debt, asset inflation, faith-based currencies, and financial bubbles wonderful combinations?
See Also:
Real Estate, Disposable Income, Debt, and Home Equity
Trend Line Disclaimer
Source Data:
FRB: Flow of Funds
Stag,
ReplyDeleteIt's going to be interesting to see how this plays out. FWIW, I believe we will return to the mean or even overshoot.
Look at Japanb. After their real estate bust, interest rates in Japan remained low. But, Japan is a surplus economy. We don't have that luxury.
If inflation keeps rising or if American's slow their buying of foreign made goods, perhaps foreigners will lose some of their appetite for our debt. Higher interest rates would be a killer for residential real estate prices.
MAB,
ReplyDeleteIf inflation keeps rising or if American's slow their buying of foreign made goods, perhaps foreigners will lose some of their appetite for our debt.
If we slow our buying of foreign made goods then we'll be sending them less money to reinvest in us.
If they keep raising the prices of foreign made goods then we'll be sending them more money to reinvest in us.
See? Perfect balance! We'll be buying less goods but we'll be spending just as much money. Woohoo!
I suddenly feel very stagflationary, again.