This is a crazy market! Bidding wars, rising prices and lack of inventory make it feel like a feeding frenzy in the residential real estate market. Are we in a bubble???
Not according to National Association of Realtors chief economist Lawrence Yun. He says in a recent interview "is not a bubble. It is simply lack of supply."
Prices are being driven upwards by a combination of factors, including:
continued low mortgage rates
a pandemic-era construction slowdown
a desire for more space as people work increasingly from home
and a stock market driven increase in money available for downpayment
A rise in financial buyers — large corporations buying up homes to rent them out — is only making the market tighter, and decreasing the number of owner-occupied properties available.
What's missing:
Unlike the mid-2000s, this time around there's no exuberant culture of house/condo flipping
While interest rates are low, lending standards are still tight, making it hard to buy a house you can't afford
America has a record-low number of homes available for sale — just 1.03 million, according to the latest NAR data. That compares to a peak of more than 4 million at the height of the last housing bubble, in July 2007.
What about listings?
The total number of active listings this week is down a record 54% from the same week a year ago, per Realtor.com.
National prices up 17.2% over last year.
Almost half of homes now sell within one week of being listed, per Redfin.
The good:
Rents have not been rising nearly as fast as prices. They stayed roughly flat during the pandemic, and are now rising at perhaps a 4% pace, Yun says.
Seller's are benefitting the most with higher prices and fewer days on the market
Buyer's are still reaping the benefits of low mortgage
The bad:
In order to win bidding wars, many of them buyers are being forced to make rushed and risky decisions.
Successful bids often need to waive any financing contingency or right to inspect the property.
Possible Outcomes:
Rates remain low, demand picks up with new jobs, there's no increase in supply, and the only thing that moves is home prices, until people get priced out.
A construction boom accelerated by President Biden's infrastructure plan, creating more supply and slowing the rise in prices.
The bottom line:
Housing prices are likely to remain high and rising for a while yet.