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Commercial Market May Be Too High Relative to Housing Market

This post was inspired by a fellow instablogger, who addressed at least the first issue, the commercial market, and pointed out that it was one-third of the housing market. We feel that it should be more like one-quarter, given the 75-25 division of income between labor and capital.

The real basis of the concern is that the housing market is still too high. Under other circumstances we might be fine. That is, there could be a situation where residential is undervalued, and commercial is in good shape. Even so, it might point to the fact that residential is the relatively better investment.

But not here. Home owners are behind the eight ball in residental. And the troubles in the residential market will lead to commercial problems as well, because the same home owners that are behind on mortgages, will buy fewer goods.

But here, we have a double whammy: Commercial is too high relative to a reference point, residential. And residential itself is too high. Therefore commercial has two ways to fall; relative to residential, and in line with residential.