The Economics of Home Buying are Getting Interesting

Neil Irwin reported last week at The New York Times Online that, “This spring’s home sales season is shaping up to be the most interesting one in years.

“The housing market will depend on which opposing force proves more powerful: long-term fundamentals of supply and demand, or near-term ripples emanating from Washington and Wall Street.

Most evidence suggests that fundamentals will prevail over time and push sales and prices higher, especially at the lower and middle tiers of the market. But the opposing forces could mean a period of uncertain dealmaking. Higher mortgage rates and a new tax law will affect several elements of home buying.”

The Times article stated, “On the demand side, the peak year for births in the millennial generation was 1990, meaning they are turning 28 this year. Many members of that large generation are now in their 30s, marrying and having children.

“In their 20s, this group was forming new households at lower rates than earlier generations because of a scarcity of jobs in the aftermath of the financial crisis, large student debts and perhaps a cultural shift in attitudes toward homeownership. That appears to be changing as they get older.

But the rising demand has not been accompanied by increase in supply.”

Mr. Irwin noted, “Builders started work on 1.3 million new housing units in 2017, which is up a lot from the depressed levels of the 2008 recession but still below the 1.5 million average between 1959 and 2007.”

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