How long can prices increase?
With prices in parts of Richmond increasing at or near 10% per year currently, and portions of the United States seeing 20%+ increases, the question is being asked more and more often in new articles, how long can this growth phase last?
The 2008 housing crisis taught us a painful lesson - an unhealthy housing market can last much longer than you can expect.
When looking at the past years, we see that the divergence from the mean began nearly 6 years before the housing market crash. Currently, we appear to be in only year 2 of a mean divergence. Obviously, the factors of the 2008 crisis are not the same as today... or at least this is the narrative that the banking industry is very intent on communicating. The lending industry touts that the credit scores of borrowers today. However, the creative lending of 2008 (no document loans/refinancing) which were at the core of the crisis, are growing yet again. With a wave of distressed properties slated to emerge on the market in June of 2021, there are reasons to be concerned.
When the current price of homes diverges from the historic trend, a "correction" can be expected. The only question is the severity and timing. The longer the divergence, the more violent the reversion (2008 taught us how violent it could be). Economists currently warn that we are in the "Everything Bubble," with all assets experiencing growth that outpaces the mean. What does an "everything reversion" look like... and when will it happen? That is the question.