By CHUCK GREEN
Trouble could be percolating in the U.S. housing market.
In a blog post last month, researchers and economists from the Federal Reserve Bank of Dallas wrote of indications that real-time market monitoring is picking up signs of a “brewing U.S. housing bubble.”
They added: “Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Certain economic factors, especially including the price to rent ratio, and the price-to-income ratio—which show signs that 2021 house prices appear increasingly out of step with fundamentals, raise red flags.”
Researchers and economists also cited growing concern that U.S. house prices are again becoming “unhinged from fundamentals.”
Moe Zulfiqar, Editor of Lombardi Letter, said: “seeing higher interest rates, businesses reopening their offices, stagnant incomes, and declining savings, I can’t help but be pessimistic about the U.S. housing market. It almost feels like a perfect storm is brewing. It could take the housing market lower, and housing-related investments could be in a lot of trouble. Beware if you own homebuilder stocks.”
Similarly, Ali Wolf, the chief economist for Zonda, a homebuilding prop-tech company, told Insider that “the housing market is showing signs of froth, no doubt,” reported msn.com.
Adding to the mix, billionaire real estate investor Jeff Greene told CNBC that he believes the market’s in a bubble.
“Absolutely. I think we’re in an omni-bubble. How long does it last? It depends. How long do you keep the faucet open and this money running?” Greene said on “Power Lunch.”
“Its longevity will depend on “how long do you keep the faucet open and this money running?”
“There’s just so much money in corporate balance sheets … and people’s balance sheets and their bank accounts that it’s just driven prices of everything higher, but at some point, this has to stop,” Greene said.
For hints of where the real estate market in the U.S. might flash initial signs of vulnerability, keep tabs on Boise, Idaho, according to Bloomberg.
In light of the pandemic, the area emerged as one of the foremost places to go in the U.S. But the price tags on homes there are descending, as they are in some Western mountain towns as well as, in most probability, other areas like Austin, Phoenix, and Tampa, the site continued.
After the peak of the current housing cycle, there will most likely be varying outcomes in cities around the country, said Ken Johnson, Ph.D., associate dean of Graduate Programs, College of Business at Florida Atlantic University.
These outcomes will depend on three key factors: population growth, housing inventory, and the degree to which a particular market’s currently overpriced.
Areas of the country with low inventory, high population growth, and a minimum of overpriced housing will probably not experience a precipitous fall in housing prices, but instead face a prolonged period of unaffordable housing.
This seems most likely for areas such as Miami and Charleston, S.C., Johnson said.
Parts of the country with less of an inventory issue, low –to no — population growth, and a large stock of overpriced homes, such as Detroit and Memphis, will most likely see a dramatic decline in the average home value, he noted.
Conversely, others don’t see signs of a bubble. Dejan Eskic, Senior Research Fellow at the Kem C. Gardner Policy Institute, points to Utah.
“We’re driven by demographics,” Eskic said in an interview for KMYU/TV. “We have a large demographic batch of young folks that are in their 30s that are ready to get out and live their life, and that’s why we’re seeing such a big housing shortage.”
In February, Realtor.com reported on a survey showing real estate agents are more bullish than consumers about the condition of the market. 77% of home buyers and sellers felt there was a housing price bubble where they resided, while under half of real estate agents felt that way about where they lived.
Veteranloans.com reported that experts are inclined to bet against a bubble, which is characterized as “exceptionally rate” in the housing market.
While quickly escalating home prices might sound familiar, gaudy price tags aren’t, in themselves, a prelude to a crash of the housing market, the site, continued. “Investment needs to be pushing the demand far beyond where it should be.”
Dr. Jim Gaines, a research economist at the Texas Real Estate Research Center at Texas A&M, also said that “In my opinion, the use of the term ‘bubble’ is wrong,” according to candysdirt.com. “Generally, when you have a price bubble, you have price increases that don’t make sense.”
That’s what happened when the bubble burst in 2008, kicking off the Great Recession. In that instance, Gaines reminds us, it was “funny money — where people were able to secure loans they could not afford. The increase in prices was completely artificial,” according to Gaines, the site stated.
Mike Hardy, a managing partner at Churchill Mortgage for California & Nevada Business, who also doesn’t believe there’s a bubble, said that while no market’s unstoppable, this market has solid momentum.
“The market’s a function of supply and demand. In no uncertain terms, there is huge demand and a lack of supply. It would require an unexpected flood of unforeseen supply — or a rapid fall-off of demand,” Hardy said.
Based on current inventory, he continued, the demographic make-up of buyers, and the pace of new builds, it will take three to four years to build enough homes to meet the current and growing demand.
Notably, even the Fed researchers are stopping short of calling this an encore of 2008.
“Based on present evidence, there is no expectation that fallout from a housing correction would be comparable to the 2007–09 global financial crisis in terms of magnitude or macroeconomic gravity. Among other things, household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom,” write the Dallas Fed researchers.
In any event, addressing the Fed’s report, Gaines said that “considering how loaded the term is, it’s no wonder that (it’s) gained steam as it traveled through the media mix. However, using ‘bubble’ is rather clickbait-y for shellshocked real estate professionals. It’s certainly going to get you some eyeballs.”
But Johnson warned to be prepared. “We’re in for a very bumpy ride.”
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