I once said ‘I build cars because the voices in my head tell me to’

At about 4am today those voices were speaking about housing affordability.

There is what I’ll call ‘good affordability’ that can come from higher incomes and maybe lower costs of housing from efficiencies, etc. Also characterized by relatively high levels of housing construction roughly inline with demographics like household formations.

And there is what I’ll call ‘bad affordability’ that can come from lower prices from distressed sales conditions that drive prices down below ‘replacement cost’. This is characterized by lower levels of housing construction.

So seems to me that we have been experiencing the ‘bad affordability’ syndrome as affordability was driven by
the lower prices of distressed sales in a distressed economy (and lower rates from the Fed’s reaction to the distressed economy), with prices remaining sufficiently below replacement cost to keep a lid on construction.

And as distressed sales have run their course prices paid rise towards replacement cost and affordability falls
to the point where the price increases level off just below replacement cost and construction stays low.

All because the federal deficit is too low, of course.

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