Unfortunately lacking from these so called experts commentary is how big of an impact rising home prices have had in terms of keeping the economy afloat. Of course if employment stays high so will home prices, I don't think anybody is in disagreement. But if home prices stop rising, will employment stay high? That's the $64k question.
There are many things the experts have missed. I will name the two I think are most important. BTW I do not think it is so much the issue of "home prices rising" as it is "home building expansion" that is fueling the economy.
1) impact of homebuilding on jobs
2) impact of all the new stores going up around all of the new homes
Number 1 is obvious but the mainstream seems to think homebuilding can go on unabated forever. The trade jobs associated with home building are enormous, as is the appliance manufacturing, trucking etc etc etc etc. Thus, home prices do not necessarily have to drop to see an enormous drop in jobs and economic activity. IMO It is the drop in economic activity that will accelerate home prices to drop IMO, not the other way around. All it takes is for demand for new homes to drop. How much pent up demand at 70% ownership rate is there? How much pent up demand can there be with real wages declining? How much pent up demand can there be after 3 years of unbridled and reckless credit expansion? How much pent up demand is there in the face of rising oil prices, rising property taxes, and 5 rate hikes?
Virtually NO ONE even talks about number 2. Look at all the hiring, merchandise, trucking ordering etc, that it takes to stock those new stores. Not only are stores battling one another for market share, they are canibalizing their own nearby stores IMO. Quite frankly we have overbuilt. Are there that many more customers than 3 years ago that we need that many more Walmarts, grocery stores, McDonalds, Home Depots, etc? This expansion will stop as homebuilding expansion stops. No one talks about it. Has anyone even thought of it?
Bottom line: Jobs will fall off the cliff once this expansion stops and it does not take a decline in home prices to do it either. All it takes is for homebuilding itself to slow significantly. The ripple affect will be enormous. I have not heard a single person outside myself mention #2. I am not even sure if Heinz has commented on it but I am 100% certain he would agree.
Mish |
