The economy has roared back to life! Corporate profits are up! Employment is up! Everything is up! And housing? Whew! Pardon me, but it’s gone through the roof! But is a super-heated real estate market good? Absolutely. In fact, real estate is the single most important indicator of a healthy economy. Why? Let’s follow the money.
Home prices are based directly upon the two fuels of capitalism: net income and the cost of borrowing. And right now, we’re talking high octane. Over the last five years, American capitalism crossbred into the global economy as the world gave Karl Marx the boot and embraced Milton Friedman.
This marriage has beaten inflation into complete submission. That's why those big screen TV’s, new cars, bed sheets and sneakers cost the same as last year, sometimes less. And low inflation is why interest rates are incredibly low.
Plus, capitalism’s ever-improving efficiency arrives home in the form of a fatter paycheck. Right now, net income is rising at a fabulous 8% clip. That means If your family made $100,000 in ’04, you’re bringing in $108,000 this year.
Wow! So everything costs the same, and you have more money to buy!
But while everything else is cheap, real estate went up. Why? Because they aren’t making more land. If you want a new house, you’re competing with someone else who has 8% more to spend. Supply and demand take over, and ka-BOOM! A price explosion. When net income is up and inflation is tame (thus low interest rates), real estate becomes more valuable. That’s why real estate is the number one indicator that capitalism is popping on all cylinders.
For reference, we should remember how we got here. Alan Greenspan’s foolish attempt to squash the stock market with rate hikes crushed the entire economy just in time for the 9/11 smackdown. But when George Bush cut taxes, net income was unleashed. The economic bull rush ensued. Now, in the middle of an expensive war, we have nine straight quarters of non-inflationary growth between 3.5% and 5%, the economy is cruising, income is soaring, and of course, that means real estate is rocking.
In fact, virtually every segment and demographic has benefited from the economy. Home values are even booming in blue collar areas and hopping in the ‘hood, proving the Bush economic plan is creating wealth in neighborhoods that old economic models didn’t help. If you own a home almost anywhere, you should send George Bush a thank you letter.
So have fun tossing darts, foolish doubters. Because conservative American capitalism has once again proven itself to be the best form of economy ever invented. And you can tell by looking at that “For Sale” sign on your neighbor’s lawn.
Housing Boom Debate — Read the opposing viewpoint HERE.
This weekend our Business Block has much more on real estate trends and how they affect YOU. Tune in Saturday 10am — noon ET.
Tom Adkins is the publisher of CommonConservative.com and appears regularly on FNC's business program Cashin' In.