Bull vs. Bear

Today’s Wall Street Journal features an interesting article exploring the same question we’ve asked ourselves here time and again: How strong is the housing market really? The Journal offers differing views from housing bulls and bears, both starting from the obvious reality that the market is hot, but not seeing eye-to-eye on whether it’s especially strong:

The bull case says the housing market is in the early stages of a rebound that should last several years because the U.S. hasn’t built enough housing to support the country’s growth. The recession and the foreclosure crisis led to a sharp slump in new-home construction and in household formation. But the population didn’t stop growing. Instead, households simply doubled up or moved in with family.

The bears argue that the recent gains in housing will be short lived, pointing to changes in access to credit, elevated consumer-debt levels, and an over-reliance on investors. They don’t believe housing will crash again, and they concede that it should provide some contribution to economic growth. But they see little evidence that the price or sales momentum is durable or that housing will provide the big boost to the economy that the bulls are expecting.

One of the key “bears,” whom the article’s author credits as having foreseen a housing bubble more than 10 years ago, points again to debt as an indicator of an imminent slowdown:

Many Americans will face trouble qualifying for loans because they have too much debt relative to incomes that aren’t growing fast — particularly first-time buyers from the “echo” boom who have taken on heavy student-debt loads over the past decade. All of this is likely to unfold in a rising-interest-rate environment.

In other words, if or when the all-cash upswing that has fueled the current market rush dies down, will 20- or 30-somethings be in a position to borrow? Will they even want to? Or will they rent indefinitely from the investors who bought at the bottom of the market and are content staying put? Who will inhabit new construction?

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Filed under: News