• deella

Are we in a Housing Bubble?

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.

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