Learning to love falling house prices
– Christopher Swann is a Reuters columnist. The views expressed are his own –
Optimism has been all but extinguished from the U.S. housing market.
The number of Americans lining up for new home loans is shrinking again, according to Wednesday’s release from the Mortgage Bankers Association, and the best that can be said of homebuilding is that it has stabilized at almost 80 percent below its peak.
With no end in sight to falling prices, perhaps we should look on the bright side. Indeed, there are three good reasons why sliding prices are not such a bad thing.
Falling house prices are usually seen as wealth destruction. But they can also be seen as wealth transfer. The next generation of homebuyers will benefit from our loss. Those young homebuyers who have been able to cling onto their jobs are already reaping the advantage. The American dream of home ownership can now be achieved at bargain basement prices.
Take San Francisco. If you earned the median wage in San Francisco at the peak of the housing market in 2006, you would have needed to devote 75 percent of your income to meet mortgage payments on the average home. Now people will pay just 35 percent of their income, according to Ian Morris, chief U.S. economist at HSBC.
It would no longer be any surprise if prices remained stagnant for a decade – spreading the benefit of cheap housing for at least 13 million new households.
Why does everyone seem to think home prices are such a great deal now? Housing costs are only returning to normal values after a speculative bubble.
When they reach 2002 prices, plus some normal appreciation, they will be at the levels they would have been, if the bubble did not happen.