There Is No Housing Bubble (Yet!)

1st of July, 2017

S&P Dow Jones Indices today released the latest results for the S&P CoreLogic Case-Shiller Indices and the news is ALL good!

  • Prices are up! (a 5.5% gain)
  • The default rate on mortgages are still low with household debt at manageable levels.
  • The demand for housing continues to exceed supply and the banks are happily extending more and more credit.
  • We are told that the demand for housing is currently outstripping supply and inventory levels are very low.

But reading the analysis, reproduced below, has me scratching my head.

NO mention of the drivers?

No mention of technological advancements, the improvements in profitability, the continual enhancement of infrastructure, population growth and changing household demographics.

The only mention of credit is the throw-away comment that “financing is available”…..

Please understand the “The Effortless Advantage” as defined by classical economist David Ricardo. It explains how our economy functions in response to the Economic Drivers, as we teach them at Calnan Flack. The Drivers ensure that the Boom Bust Cycle must perpetuate.

There is NO housing Bubble (YET!)

Our study of history tells us that what is occurring is EXACTLY what has happened in EVERY cycle since the 1800’s.

Let history be our guide and the Calnan Flack Economic Cycle Action Plan shape our framework of investment thinking. We are still in the early stages of this current cycle and there is plenty of time for it to run. NOW is the time to be selecting quality growth assets to leverage to your investment advantage.

Speak to the team at Calnan Flack to find out how we can help you.


“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” says David M. Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up. The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four- month supply. Adding to price pressures, mortgage rates remain close to 4% and affordability is not a significant issue.

“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them? For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable. Total mortgage debt outstanding is $14.4 trillion, about $400 billion below the record set in 2008. Any increase in mortgage interest rates would dampen demand. Household finances should be able to weather a fairly large price drop.”


Let’s get started

If you want to avoid the mistakes of not understanding the dangers of investing without an understanding of the Economic Cycle, then why not have a chat to us about how we can help?

You have nothing to lose except a few minutes of your time and everything to gain.

So… let’s get started.

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Disclaimer: Any opinions or recommendations expressed here do not purport to Financial Advice but rather should be considered General Advice and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. Should Financial Advice be sought, we suggest you seek such advice from an appropriately qualified advisor. Any growth rates, yields, rental income, tax rates, interest rates, depreciation rates, inflation rates Dividends per Share (DPS) and Earning Per Share (EPS) etc shown are estimates only and should not be used as a guide to future performance. Past performance is not necessarily a guide to future performance and should not be relied upon for this purpose. Authorised Representative of PGW Financial Services Pty Ltd – AFSL 384713 ABN 15 123 835 441.