Frank Nothaft, Freddie Mac’s chief economist, said that housing has none of the characteristics typical of assets that can experience sharp price declines. Assets that are susceptible to a burst in value, he said, are purely for investment and offer highly speculative returns, can be bought or traded at low transaction costs and are held for a relatively short period of time.
In single-family housing in the U.S., “the consumption component is much more important than the investment component,” he said, and 90% is occupied by the owner. Transaction costs are very high, and the average family lives in their home for 14 years.
“I haven’t heard of anyone who’s a day trader in housing,” Nothaft said.
For a price bubble to occur, “you would also need oversupply,” he said. “But the inventory of houses for sale is at its lowest level in 30 years.”
“Some places, yes, may see declines,” said Eric Belsky, executive director of the Joint Center for Housing Studies of Harvard University. “But there needs to be concentrated job losses, the likes of which we haven’t seen” recently.
“When there’s a glut of houses on the market is when prices would fall,” he said.