The economic recovery is obstructed by many uncertain factors and among these; the housing market may be the most confusing. For some time, the real estate market looks like it’s in the early stages of a double dip. Home sales plummeted last July and many analysts are predicting that the market will continue to struggle for years to come. Some analysts say that the worst part of the storm is over. So, buying a Carmel CA homes now would make a lot of sense.
However, this doesn’t clear up all the uncertainties. If you see housing as a luxury good, then you will think that house prices will rise nearly as fast as incomes during the long run and that homes today are not terribly overvalued. Otherwise, if you think that housing is a staple, prices will rise much slower.
The difference between these two points of views is paramount and it’s quickly becoming the subject of debates. There is no doubt whatsoever that prices rose proportionally with income from 1970 to 2000. According to a recent study, the house prices rose not much faster than inflation for most of the last century.
The pattern makes perfect sense. As people become richer, they tend to spend less of their income on basic needs. Since shelter can be viewed as a staple, a shrinking of consumer spending over time is expected. In this case, home prices should increase at the same rate as general inflation and well below incomes. If this view is proven to be correct, home prices may still be overvalued by about 30%. This is not good for owners of Carmel CA homes.
On the other hand, some economists don’t buy this theory. They believe that housing prices rise nearly as fast as incomes and that the real estate is no longer in a bubble.
The best advice for would-be buyers and homeowners of Carmel CA homes would be to think of a house not as an investment but as a place to live. If there is a good chance that you will move within three years or so, then it would probably better if you rent. The troubles in buying are just too costly.
