A Financial Advisor's Analysis on the Real Estate Market

Warning: A cup of coffee will only just keep the head from hurting if you attempt to read the linked article!

John Maudlin of Millenium Wave Advisors pens this article about the national housing market and how, nationally, he believes we are headed for a decline in housing prices. His analysis is filled with charts, graphs and data to make my head spin; and I like numbers!

While my opinion is that we will not see an across the board decline in housing prices, rather a decrease in appreciation, his analysis is worth considering. The thrust of his article is that we will see a decline in prices across the nation. He argues that much of the US’s consumer spending is tied to the equity in our homes. In addition to consumer spending, he points to the National Association of Realtors “First-Time Homebuyer Affordability” index and the fact that “starter” home prices have risen 25% to $181,000 in just 3 years.

[ed. wow, you’re giving time to opposing viewpoints!]

Below the Fold: Paul Harvey & The Rest of the Story

While his view is, of course, very guarded, I believe there is an important point missing from his overall analysis. The housing market has been the driving force, through low interest rates, and creative financing, that’s kept the nation’s economy moving. While the run has been good for the housing industry, and therefore, the nation’s economy, it is time for other sectors of the economy to step up.

Dinner conversation with my brother-in-law, a financial advisor with Merrill-Lynch, was intriguing. He sees other sectors stepping up and views real estate as a lagging indicator. Meaning that real estate follows what the economy has done. His argument is, if the economy is to continue its moderate growth as its showing in spite of nine months of real estate valuation deceleration, other sectors will have to and are stepping up to the plate.

His view that real estate is a lagging indicator holds true if we consider that, the last 5 years or so have been phenomenal for the real estate market, and the perception has been that the US economy, as a whole, has been suffering from a head cold. Prior to the last five years, the economy, specifically the stock market, was ripping along, fueled by a burgeoning tech sector, and the housing market, was plodding along at an even pace.

What does it all mean? Should I buy now or sell later? Call me! Let’s sit down, put a sharp pencil to some paper, and figure out what works best for your current situation.

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