Exactly How Overpriced Is Real Estate Right Now?

exactly how overpriced is real estate right now?
This week's top headlines

Some Renters May Get Relief From Biggest Apartment Construction Boom in Decades, but Not All

When viewed through a wide lens, renters across the U.S. finally appear to be getting some relief, thanks in part to the biggest apartment construction boom in decades...
 
When Will the Housing Market Crash?
A housing bubble burst isn’t imminent, but here are the factors to keep an eye on...
 
Is it a Good Time for Investors to Unload?
Real estate investors have done well. Rents have risen and home price appreciation has been quite exceptional. Now, as rental rates slow, owners may consider returning inventory to the market...
 
NAR Economist: ‘Housing Recession Is Over’
The National Association of Realtors releases its housing forecast for the remainder of the year and 2024....

 

Hey gang,

You may have heard the rumblings from places like the National Association of Realtors and Zillow posting about how the market correction is behind us, prices are up, multiple offers are the norm again, and it's back (was it ever gone?) to being a great time for sellers.

Although on the surface that may appear true, in terms of the Case Schiller posting the 4th straight month of price appreciation, there's a lot more going on than what the mainstream media likes to feed you.

I'll preface my "rant" by pointing out that the market we're currently in just simply isn't sustainable. If that isn't the true definition of a bubble, I don't know what is...

Let's start with home values. Everyone agrees that...


 


Now I will point out that that is the common theme throughout history: real estate prices are always "too damn high", yet 5 - 10 years later people can't believe how good the prices were at that time.

But having perspective is helpful. One way to look at that is by comparing the current affordability to the average:


 


If you can squint hard enough you might juuuuuuuuuuuust be able to make out that current home values as a ratio of income is 4.5x. That means that the average price of a home is roughly 4.5x the average income. 

That's a lot

The 50 year average is only 3x. Even when things were absolutely insane leading up to the '08 crash it only got to 4.12x.

That's not good...

So how are people affording to pay that much of their income towards a house?

One factor is low unemployment. Even though incomes have not risen even close to as fast as houses, people are still doubling-down on where they live.

Partly due to being able to work from home, partly due to "house-hacking" and getting roommates, partly due to the student loan deferment, partly due to just taking on massive amounts of debt with no real plan.


 


As long as the unemployment rate is 3.6 people are going to be fine living in magical fairy tale land where they're paying record prices for houses and stocks even though the fundamentals don't make sense...

But are the low unemployment numbers as rosy as the media paints them to be?

It's true the overall job numbers may look solid, but when you dig in under the hood you see that the government has revised *down* the jobs figures every month so far this year:


 


I don't want to go any deeper into this in this email, so if you want to know more check this video out (timestamped to where relevant).

To summarize:

When analyzing the job numbers to better understand where we stand in a recession, they look at "leading indicators", "coincident indicators", and "lagging indicators".

In a recessionary period we'd start out by seeing the "leading indicators" slow down. Well they haven't just slowed down they've flipped completely into the negative:


 


These are the numbers for the residential construction, trucking, manufacturing, and temporary help service industries.

 


There are several other factors that I can get into but this is probably already more detail than most people want. So if you're still reading and are a glutton for punishment (via a cornucopia of information) feel free to reach out, I love talking about this stuff :o]
 
As always, my promise to you each and every week is to act as your personal assistant and help you understand what's happening in the world of real estate.

If there's something you'd like me to include in a future newsletter, please let me know! :o]

until next week!

-realtor josh

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