Home prices can’t go straight up forever. But this probably isn’t a bubble

Fear spreads that the United States is in the middle of another housing bubble that will end in a catastrophic accident. Industry officials and economists agree that the explosion in home prices is not sustainable, as home prices cannot rise by up to 20% year after year.

In contrast, there is currently a huge home crisis and home builders are being very cautious about adding new supplies.

“In some cases it’s a warmer housing market than before the Great Recession,” said Anita Markoska, Jefferies’ chief economist. “But the risk of bubbling is much lower.”

Advertisement

Bank of America economists acknowledge that prices may fall in the short to medium term in some markets.

Nevertheless, the bank said in a recent note to clients that “there is no possibility of a hard landing” this time.

‘We have housing shortage’

Advertisement

Of course, Bank of America acknowledges that “bubbles are infamously difficult to detect in real time.” These only become apparent in blindness. This is what makes them bubble.

Yet, today’s supply situation is the opposite of building greed 15 years ago: in the past, there was a huge overbuilding problem. On top of that, about 2 million homes were built each year, compared to just 1.6 million today.

“In the end, we ran out of supplies. That’s why the market crashed,” Markoska said.

As of the end of June, there were only 1.25 million existing homes for sale. It has dropped by about 19% since a year ago. At current speeds it is seen as a balanced market equal to only 2.6 months of supply or less than half of the six months.

Advertisement

“We have a housing shortage. Prices are not falling because of the shortage,” said Lawrence Eun, chief economist at the National Association of Realtors.

The median price of an existing home hit a record hit of 36 363,300 in June, up 23% from the previous 12 months.

A serious-bound scene is being prevented

Advertisement

The good news is that there are signs that the housing market is self-correcting as a result of this remarkably high price.

New home sales have fallen at an unexpectedly weak pace since April 2020, marking the third month in a row, according to data released Monday. Existing sales fell four months in a row before a higher ching in June.

“Some buyers are simply priced,” Eun said.

Advertisement
Instead of paying what they see as unreasonable prices, some potential home buyers are choosing to wait in the opposite direction and with rent.

“It can be a blessing in disguise,” Jefferies ’Markovska noted, noting that home prices could cool as plants grow. “This prolongs the housing cycle and prevents a boom-bust dynamic.”

Ninja loans are out of style

Another important difference between today and the mid-2000s is that the orrow has not gone out of hand, at least not yet.

Advertisement
Jepimorgan Chos (JPM)CEO Jamie Damon told lawyers at a hearing in late May that although there were “some bubbles in housing prices”, the payment situation is much stronger today.

“Unlike in ’08 and ’99, when there were huge wages and bad mortgage underwriting, there wasn’t much profit and mortgage underwriting,” Dimon said.

During the latest boom, housing demand was artificially driven so that few people with little or no income were able to get mortgages. The federal government stopped the so-called NINJA loans after the sub-prime crisis.

“Donors are becoming more and more accountable this time around,” said PNC chief economist Gus Futcher, referring to the large-scale industry. “We haven’t seen any documentation and no return of down payment loans. This will help prevent crashes.”

The risk of selling fire is low

Advertisement
The Federal Reserve raised interest rates in 2004 when many homeowners, including a compliant rate mortgage (ARM), increased their borrowing costs.

Fed rate hikes today could slow the housing market by making mortgages more expensive for potential buyers. However, very few orrow borrowers will be forced to pay more for existing mortgages. This is because, according to Bank of America, only 2% of outstanding secured mortgage debt is under permanent regular mortgage. In 2006 it dropped sharply from 21%.

Minimum wage workers cannot be hired anywhere in America

Homeowner balance sheets are also in a stronger place today.

According to the Federal Reserve, mortgage debt as a percentage of disposable income reached more than 7.2% at the end of 2007. At the beginning of 2021, the leverage metric was closely watched at only 3.45%.

This is very important because the extra lift is that the housing bubble spread out of control in the mid-2000s.

Advertisement

Bank of America economists write, “Lower withdrawals mean household balance sheets are in a better position to handle falling home prices.” “Therefore we are not likely to see the waves of defaulters, which resulted in the sale of fire.”

.

Read More World News

Keep Reading Latest Breaking News

Source link

Advertisement

Leave a Comment