Expect Home Sales to Cool Due to Overheating Pricing

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Family in front of their new home
Family with Home Sold Sign in front of a house in a modern suburban neighborhood
Family in front of their new home
Family with Home Sold Sign in front of a house in a modern suburban neighborhood

The interesting thing about any housing recovery is that there is a Catch 22 involved. If home prices appreciate at a faster rate than wage increases, would-be buyers would be caught in the middle. This is precisely what’s going on in certain red-hot markets in the United States. In some areas, the appreciation of real estate is reaching a double-digit territory. As a whole, the median price of used homes reached $202,600. This is a whopping 7.5% increase from the previous year.

Obviously, this is not sustainable because American wages are not going up at that rate. Not even close. Many real estate experts and industry observers are concerned that this red-hot appreciation is going to put downward pressure on would-be buyers.

You have to understand that the current generation, the millennial generation, is the huge portion of the US population. This generation is quite different from Generation X and the baby-boomer generation. Their buying patterns are different. Their housing patterns are different. Most would prefer to rent rather than buy.

Expect the millennial generation to dig in their heels due to the strength. They really don’t have much of an incentive to buy if home prices continue to explode at its current rate. The only way out obviously is for wages to increase dramatically. Thanks to demographic trends, there’s actually a good chance of this happening sooner rather than later.

Still, the question that remains is timing. If other economic factors play out, even if wages rise, that alone might not guarantee a return to the pre-2008 days of housing. Maybe that’s not really a great thing to wish for. What’s the point of housing prices rising… only to pop again?

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