It's NOT a crash, and it's NOT a correction, I think it's this...

[Shiloh Lundahl]

I keep hearing about a crash or a correction in the real estate market.  I don't think it is going to be a crash or a correction.  I think there are multiple things going on, but mostly I think it is the economy.  Let me explain. First, a correction would indicate that a value has artificially inflated to a higher price than it should be.  Most economists would call this a bubble and when it pops the prices come crashing down to the level where they should be. 

During the previous crash of 2006 - 2010, real estate really did experience a bubble. Credit was too easy to get and adjustable rate mortgages which adjusted higher than the mortgage holders could afford, caused people to start defaulting on their mortgages.  When the banks saw that there was a huge wave of defaults, they stopped lending so people that needed bank loans to buy a house were not able to buy houses.  Then, with so many people in the same situation, the housing market started to get flooded with houses.  So when you have the banks not lending and supply skyrocketing, the natural result is home prices go down until the supply eventually went away when people with cash started to gather up the supply.

Today the market is different.  Many people are in low rate, fixed loans so they don't have a fear that their mortgage will adjust to where they can't pay their mortgage any more.  And the people who were able to get loans in the last several years had to go through a difficult process of proving to the bank that they could repay the loans so the borrowers were more financially stable then the average borrower of 2006 to 2010.  So I don't foresee a not of real estate inventory hitting the market all at once.

But this is what I see.  Over the last several years, The United States printed 1/3 of the money supply.  And as you know when more money gets introduced into an economy, the prices of goods go up.  And if you introduce 1/3 of the money supply, it is not hard to understand why prices of things have gone up about 30% within just a few years. That includes house prices.  So a home that was worth $250,000 a few years back would probably be worth $330,000 to $350,000.  People might call that appreciation, to me it just looked the same as the inflation for everything else. So I don't see the VALUE of houses having gone up, but I do see the PRICE of the houses having gone up because the VALUE of the money has decreased.  And with wages not going up as quickly as inflation, what I see is people carrying balances on credit cards and not being able to spend money on things they used to be able to spend money on.  Eventually, people may start to default on their mortgage payments, not from a lack of being responsible, but because their basics of food, transportation, and medical, and insurance payments have all gone up. With not being able to make mortgage payments and needing to access the equity that was created over the past several years.  This may increase the housing supply on the market.  And with the housing supply increasing and the difficulty qualifying for a loan at 7% interest rates, people that need to sell may start to lower their cost.  This may be what happens in the market.  It's not a crash and it's not a correction.  I think the prices make sense considering the increase in the money supply. But I think they may come down a little with the extra supply from people that have to move and they are willing to lower the price to sell the home. 

That is my analysis.  What do you think?