It’s a discouraging scene: bidding wars, rising prices, and fears that home ownership is beyond the reach of millions of Americans. We are in a real estate frenzy, driven by a massive shortage of inventory, and no one is happy about it.
Why it’s important: Not all bubbles burst. Real estate, in particular, tends to rise in value much more easily than they fall. Also, says chief economist at the National Association of Realtors Lawrence Yun, this “is not a bubble. It’s just a lack of supply.”
By numbers: The United States has a record number of homes available for sale: only 1.03 million, according to the latest NAR data. This compares with a maximum of more than 4 million at the height of the last real estate bubble, in July 2007.
- The total number of active tokens this week falls a record 54% from the same week a year ago, by Realtor.com. This, in turn, has helped increase domestic prices by 17.2% over last year.
- Almost half of houses are now sold within a week of being listed, by Redfin.
- Austin, Texas, the average publication price has risen 40% in one year to $ 520,000.
The big picture: Prices are driven upwards by a combination of factors, including continued low mortgage rates, the slowdown in pandemic-era construction, the desire for more space as more and more people work from home. and an increase in the money available for the down payment.
- An increase in financial buyers – large corporations that buy houses for rent – are only narrowing the market and decreasing the number of properties available to landlords.
- What’s missing: Unlike the mid-2000s, this time there is no lush culture of flipping floors. Although interest rates are low, lending standards remain strict, making it difficult to buy a home that cannot be afforded.
The good news is that rents have not risen as fast as prices. They remained almost flat during the pandemic and are now rising at a rate of perhaps 4%, Yun says.
Home buyers they are the biggest losers. In order to win bidding wars, many of them are forced to make hasty and risky decisions. Successful bids often have to waive any funding contingency or right to inspect the property.
- This raises the terrifying prospect to leave a large down payment and then not be able to get a mortgage and / or find that the house requires hundreds of thousands of dollars in repairs.
The worst result, says Yun, it would be if “rates stay low, demand increases with new jobs, there is no increase in supply and the only thing that moves are house prices, until people have This would mean that we are creating a society divided between tea and tea. “
- The result of the best case, on the other hand, it would be a construction boom accelerated by President Biden’s infrastructure plan, which would create more supply and help stop rising prices.
The summary: Housing prices are likely to remain high and rise for some time.