Many in real estate speculate that a strong economy and job market will boost the economy. According to Rich Miller of Business Week, the idea goes, “buoyant growth will boost wages and salaries, giving home buyers the extra money they need to cover their increased borrowing costs.” But with consumer spending down and a job market barely moving, it’s hard to be optimistic. In fact Miller points out in his article, “That Starter Home May be a Nonstarter”, if interest rates rise by 11/4 percentage points, a “median family income would have to climb nearly 15 percent to keep houses as affordable today.”
Therefore, what happens if houses just aren’t affordable, especially to new buyers? Two things that might happen are not good: riskier adjustable loans and/or a steep drop in prices.
Of course, maybe condo-living will become the choice of first time buyers; however, the fact is no one knows for sure. Maybe massive baby-boomers retiring will stimulate jobs and salary increases, just in the nick of time.
I’ll be reporting on this subject later this week as well.