Just commented on Marketwatch, and thought I'd post an expanded version of the comment here as well, along with a link to the fantastic piece on Herb's blog, quoting a long-time mortgage industry professional.
One of the commenters trotted out the oldest and lamest excuse in the real estate broker's handbook. The old "real estate can't go down because where will people live?" ploy. Not surprisingly, the guy appears to be a mortgage broker.
He states:
Am I the only person who heard that the population of the United States is now over 305,000.000. Gee where are all these people going to live !, Did we forget about supply and Demend, how about Job Growth.
Let's pull this one apart, once and for all:
If population pressures were the only thing that drove real estate prices, Cairo would have the most expensive real estate on earth. After all, it's got everything going for it. Lots of population, growing fast due to the combination of a fairly religious culture and access to some modern medicine.
The problem is that people wanting housing isn’t enough. They have to have the incomes to afford them, and there needs to be credit available for them to buy with unless they are very rich. Demand, in the end, is not measured in people wanting houses, it's measured in the dollars they buy the houses with.
Less dollars, less demand. Doesn't matter how many millions of people are out there.
When credit contracts, as it is currently doing, there is less money to keep driving those prices up. The prices can and will fall.
When people earn less money (as they might, in a recession) there is less money to support those prices and they can and will fall.
Don’t get me wrong. I don’t expect the US to become like Cairo, or any number of other high-population basket-cases around the world. But the old "population growth" explaination is old, simplistic and wrong. It takes population, plus rising stable incomes, plus good access to credit to keep things moving along. Even so, historically growth has been a rate similar to that of GDP: about 3% per year, with the big upswings always balanced out by downswings.
Prices can and do fall in the short to medium term. They have done this throughout history, even with rising populations. They will again.
Oh, and by the way Jason, you would be easier to take seriously if you learned how to spell "demand."
-btc
