Is the Housing Market Crashing?
The US housing market remains hot, according to Realtor.com, with median home prices currently up 10.3 percent from a year ago. With all the stories of unqualified cash home bids that are invisible, you may be wondering: is this a bubble and should we expect it to collapse? Well, not really – despite some signs of irrational buying behavior, the rise in demand for housing is largely due to a shortage of homes, which is likely to persist until the end of the year. Here’s what you need to know.
Are we in a bubble?
A bubble is when the price of an asset does not depend on its real value. However, a sustained spike in prices doesn’t necessarily mean there is no good reason for it, and if you look at the unusual circumstances surrounding the pandemic – deferred demand, low mortgage rates, abnormally low supply – you might argue that this is not the case. not a bubble.
“It’s a mixture of things,” says Jeff Ostrowski, a housing analyst at Bankrate. “We’ve got COVID pushing people to look for more space or other places, [glut] millennials in their home buying years, a job market that’s been resilient for white collar workers, a stock market that’s been rewarding, and there’s definitely some crowd psychology when there is some fear of missing out. This is a really ambiguous picture, but now there are still more buyers than sellers. “
And there are signs that the foam in the market is starting to gradually subside. Although prices are still rising, July was the third consecutive month in which annual gains declined (July was 10.3%, up from 12.7% in June 2021). Unsold homes rose 3.3% from May to June, according to the National Association of Realtors, a sign that supply is very slowly gaining momentum compared to demand. And as home prices rise, there seems to be a limit to what buyers are willing to pay, even at low interest rates.
“We have some signs of customer fatigue,” says Ostrowski. “Of course, there are buyers who are exhausted by being hindered. We hear stories of homes for sale and 40 bids over the weekend; this means that 39 people made an offer and did not receive a house. So yes, this is discouraging for a lot of buyers, especially if you have little money for a down payment or don’t buy cash. “
Where is the market heading?
The housing market is not easy to predict, but most experts do not expect a collapse. Unlike the 2007 housing crisis, which was caused by a poor credit climate, today’s overheated housing market is the result of supply and demand.
“Back in 2005-2007, lenders were just throwing mortgages on anyone who wanted them — zero prepayment loans, negative amortization loans — all crazy things. And today it simply does not exist, ”says Ostrovsky. He adds that he doesn’t think a possible hike in mortgage rates will be a big factor in cooling the current market, as rates during the 2007 madness were nearly double what people are paying now.
Instead, many housing experts believe the current seller market will continue until 2022, or at least until housing supply catches up with demand. Although the housing stock is starting to grow, overall it remains extremely low. This is corroborated by a recent report from the Urban Lands Institute, which says the number of new residential buildings (new housing projects) being commissioned will grow to the highest rate since 2007, but still not meet pent-up demand.
“Housing economists agree that we have a long-term home shortage that will be with us for a while,” says Ostrowski. “It might make it a little easier, but the underlying factors are not going anywhere.”