08 Oct October 2017 Update: Where Do We Go From Here?
Where do we go from here? That’s what most market participants are thinking. This current expansion is reaching record territory in terms of length. The are few if any non-geopolitical warning signs for another recession, and the stock market keeps reaching new highs.
- SF/Marin home prices are now ~17% above the ‘06-’07 peak
- SF/Marin prices are about 67% above the ‘11 lowest recession home price point
- We are running 123% above Business Cycle Home Prices (BCHP) – which since 1978 is exactly average.
Business Cycle Home Prices (BCHP) is a concept which measures current home prices relative to the 7 year trend. BCHP are always a function of the availability of jobs primarily, and the availability of home financing secondarily. If you removed the effect of interest rates, we would be in stable territory for continued pricing stability. However… Interest Rates are close to the lowest they have ever been in over 50 years coinciding with the peak of this business cycle.
National home prices have never been more dependent on low mortgage rates.
However, since we are all competing for scare resources- lets take a closer look at the effect of this continued low interest rate environment:
- Low interest rates encourage households to carry more debt.
- Creates momentum for the wealthy and powerful with access to almost free capital
- Two effects of sustained low interest rates during economic expansions:
- 1) Cannibalization of future economic growth as an effect of maxed-out household debt at artificially and unsustainably low rates
- 2) Increasing social friction as the disparity of wealth and political power increases.
As long as interest rates don’t increase much (which in the long term I argue is bad for our country) SF & Marin home shoppers and sellers should anticipate that housing price changes will continue to be a local phenomenon based on availability of jobs- which in the short and intermediate term looks solid with more office space coming on-line and tech firms consolidating closer around San Francisco.
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