Damn! There's that "law of supply and demand" again.
Those arguments are simple conjecture, and overridden by a number of factors, not the least of which is the law of supply and demand.
Can't make a 'compelling' case
Strong housing demand, coupled with a 1997 tax-law change that allowed most homeowners to avoid capital gains taxes on home sales, could have set the stage for a bubble, said Stephen Kim, a home building analyst with Salomon Smith Barney (C: news, chart, profile).
"But I don't think you can make a compelling case at all that there is a housing bubble. And the reason is supply," Kim said.
Kim said his research shows housing inventories at about half of what they have historically been, with permits for new construction running well below levels of the 1970s and 1980s.
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In fact, the inventory of both new and used homes on the market is low by historic standards.
Since the economic boom began in earnest in 1993, there has been anywhere from a four-month to seven-month supply of existing homes on the market; today there is about a 4.8-month supply, said Alex Perriello, chief executive officer of Coldwell Banker Real Estate (CD: news, chart, profile).
Predictable demand
Supply and demand for new homes has been in balance since 1990, and at current production levels should remain balance through 2020, Hovnanian said.
"Demographics are destiny in housing. The demand for housing is highly predictable, based on household creations," he said.
Demographers predict about 1.2 million new households will be formed in the U.S. each year through 2020. Adding in 300,000 housing units that are demolished each year and annual demand for 300,000 vacation homes, there is a need for 1.8 million new homes a year.
Right now, builders are constructing about 1.2 million single-family homes each year, along with 300,000 multifamily units. Add in another 300,000 mobile homes and the 1.8 million total equals projected demand.
Of course, there are a few differences between houses and gold, not the least of which is that gold does not shelter you from the elements. Unlike gold bulls who make their case based on the idea that demand will continue to rise out of various fears, e.g. pure speculation about the future emotions of other people, this writer actually makes an effort to quantify actual supply and the drivers of natural demand.
Attention gold bugs, this is how you make a case based on the law of supply and demand. |
