Alternative Theory: Weighed Down by Debt
One of the most overlooked factors driving the housing market is the rate of household formation.
When people graduate from renting apartments to buying homes, get married and start families, etc., housing demand strengthens; when the number of households contract — as happens in recessions — housing demand weakens.
Clearly, jobs (or the lack thereof) are critical to new household formation.
But, I’d add two more factors.
One. Psychology. Purchasing a home is a long-term commitment — and, in view of the last 5 years — certainly not one without financial risk.
Buyers step up and take on that commitment when they feel confident — and defer it when they feel apprehensive.
Two. Other Debt.
Of course, today’s home Buyers must not only possess confidence but funds.
Even 20-something’s lucky enough to have good jobs could easily now have $50,000 in student loans.
Or, a chunk of their monthly income is committed to car payments.
Throw in a smattering of people weighed down by “unwise” credit card purchases, and suddenly, the pool of prospective Buyers isn’t as full, and is under stress.
A stronger economy, of course.
But, so would doing something to pare down — and ideally, prevent — the heavy debt loads many young adults now accumulate before ever buying their first property.