Pent-Up Demand

  • The short-term outlook is weak, with the first quarter existing home sales figures to be down by about 5 to 8 percent from one year before. Severe winter weather, inventory shortage, higher mortgage rates, and tight credit availability are some of the reasons for the setback.
  • The long-term outlook, however, is bright. Simple comparisons of very basic numbers imply current under-performance but suggest the potential for a sizable increase in home sales.
  • The table below compares three time periods:
  1. The year 2000 can be characterized as being very normal and uneventful. There was no discussion of a housing market bubble by economists or in the media. One may say that the housing market was also uneventful or even boring.
  2. The year 2005 was the peak bubble year in terms of eye-popping home sales and home prices induced from essentially no underwriting standards.
  3. The current year 2014 clearly looks to be underperforming, but has huge upside potential. Consider: there are 5 million annualized existing home sales today, which is the same as in 2000. Yet we have 34 million additional people living in the country, 4 million more people with jobs, and much lower mortgage rates. When we’ll get this upside release of pent-up demand, however, is unclear at the moment.

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