Are these prices even realistic?

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How long will the American housing market remain white-hot? Will record-low housing inventories continue to drive panic-buying fueled by the fear of ‘missing out’.

Jeff Greene – Wikimedia Commons

Similar to the months leading up to the housing crash of 2008 housing expert’s opinions vary widely whether if we’re even in a bubble, or if values will crash. Over a decade ago Billionaire real estate mogul Jeff Greene predicted a mortgage crisis just months before mortgage-backed securities and exotic mortgage instruments brought down the largest banks. Greene put his money where his mouth was investing $50 million in shorting or betting against the subprime mortgage market netting over $450 million in profits. Are we in a housing 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? said Greene in a recent CNBC ‘Power Lunch’ segment.

What most housing experts can agree on are the forces driving up prices: low inventory and cheap money. Speaking with local realtors I was told a listing’s days on market are now measured in hours. Not surprising since housing inventories are at a record low, to be more exact just over one million units nationwide at the end of March. Consequently, the number of homes for sales is down nearly 30% compared to one year ago.

However, one thing may dampen new construction- lumber costs. If you’ve seen the recent plywood memes on social media then you know that wood product prices have skyrocketed. If you’re building shelves that single sheet of plywood could cost you upwards of $97. Blame the do-it-yourself crew you see on Saturdays at Home Depot who made home improvements during the pandemic and outdoor dining construction. Both of which seriously depleted lumber supplies along with plant shutdowns in the early days of the pandemic.

While experts disagree on the future of the housing market Fannie Mae revised its mortgage originations forecast down from 4.5 trillion in 2020, 4 trillion this year, and 3 trillion in 2022. If these forecasts are accurate the housing bubble is likely to slowly deflate versus suddenly bursting. Also, low interest rates have helped offset much of the recent gains in home values in the last year. Further propping up the market is generous forbearance qualifications and extended mortgage foreclosure deadlines. In effect, the government has held up their hand telling mortgage servicers ‘not yet’. The most probable outcome is home values will not crash in 2021 since there’s no indication that the current shortage of housing inventory will ease up soon. That leaves forbearances and foreclosure delays along with low-interest rates as the lynchpins of today’s market.

Older homeowners should seriously examine their current financial liquidity and future needs. If they’re lacking, this once-in-a-generation housing market could yield hundreds of thousands of dollars in borrowing power at today’s low-interest rates.

3 comments

Christian Mills April 20, 2021 at 9:27 am

Shannon – curious if you have seen anyone that has predicted this “bubble” in a regional or state-by-state basis versus the entire country?

Reply
Shannon Hicks April 20, 2021 at 11:00 am

I haven’t seen any regional predictions but many say values may be somewhat stable or have less decline in the suburbs do to urban flight and many looking to leave high-cost cities and work from home instead.

Reply
The Positive Realist April 22, 2021 at 2:44 pm

Christian,

It is difficult to imagine that regional impacts would be totally different than in 2007 with some significant surprises. It is not so much the initial impact of the burst of any home price bubble as much as it is the lack of or a slow recovery in home prices that is so devastating to many regions. Yet for those who are looking to sell their home in the short term, long-term impacts are of lesser concern.

One topic that is greatly overlooked in discussions on regional loss predictions is the depth of the impact from the phase in the lifecycle of homes in that region. Some claim there are four phases and, more recently, some point out five. In one region where home construction is limited, 14 years could mean homes are suffering from functional, economic and even physical obsolescence and thus higher prices are softer than in areas that have a lot of recently built mid range and upscale homes especially in those areas where homeowners show a high degree of pride in ownership.

Until we have a better idea of the actual causes leading to bursting (if that happens) the home price bubble,, regional effects are a little difficult to predict with a high degree of confidence.

Reply

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