Tired tropes about housing abound in economic commentary.
Often you’ll hear financial commentators talk about one single “housing market” in the United States. But as Jason Hartman has long argued, there are many housing markets in the US that vary in price, size, and quality.
Through his diligent research, Jason has found that there are three principal types of housing markets in the US.
Cyclical: These are markets where prices can oscillate quite notably during a period of time. At a given moment, prices can reach significant crests in terms of price, while also experiencing notable troughs in precarious economic circumstances.
Hybrid: These markets feature characteristics of cyclical and linear markets. These kinds of markets do trend in a cyclical manner, but don’t go all the way. They can still make sense from a numbers perspective and can still generate a respectable cash flow for real estate investors.
Linear: This is something that most people don’t seem to grasp when talking about housing.
In a similar token, you’ll hear people usually talk about how things are so expensive now.
Sure, nominal prices of certain goods and services are higher, but we have to ask the age old Hartman question:
“Compared to what?”
This is the most important question that we should be asking. These items may be expensive in terms of dollars, but when compared to other commodities such as gold or oil, they might actually be historically cheap.
Also, for housing, the nominal price of the average home in 2022 may actually be higher, but that high price tag gets you a much higher quality and even bigger house than a house of a similar price back in an era like the 1970s.
Technology has vastly improved since then. A rich person’s home back in that previous epoch would likely be the equivalent of a middle class home in the current year.
These are nuances that often get ignored by most people.
But as empowered investors, we know better.
If you want to understand the finer details about the Hartman Question and why the housing situation in 2022 is fundamentally different from the 2007 housing crash, check out Jason’s most recent video here.
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