Reply to Federal Reserve: signs abound that housing market is entering bubble territory

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][b]Why are people forgetting that there is a housing shortage,[/b] especially for single family homes. Construction of new hosing has not picked up. Rent prices in some places are almost as high as mortgages. People still have kids and need more space.

Home prices will not go down. But they will not grow at the same rate as they have the past few years. We’re likely to see a steady growth over a ten year period. By that time there will be more single family housing available. Things will balance out. [/quote]

Nope. New house starts (new construction housing) “surged” in February 2022, to the highest level since 2006. There is no housing shortage— that is a myth. There is an inventory shortage, brought about partly by pandemic behaviors and partly by owner behavior responding to inflating prices and overvaluing their existing asset while feeling priced out of upgraded houses. But that’s all about to change. As prices decrease we’ll see more houses on the market as people try to cash in before the boon ends. Most importantly, as prices begin to go down, investors and speculators who have been sitting on empty properties or renting property are going to start unloading that inventory. Then we’ll start seeing the distressed sales from people who overbought during the exuberance. There will be plenty of houses on the market in the next year. Too many.

There are more people leaving the DMV than moving into it—we are losing population faster than any other region and that’s been going on for a few years. Plus, like everywhere we aren’t creating enough people to replace the giant Boomer generation as they move into retirement homes and pass on. There are more houses/housing than people in the region than at any point since WW II. So, once and for all (I hope) let’s put to bed this old canard that there aren’t enough houses. There haven’t been enough houses for sale in the recent past, but that’s not the same thing at all. And that’s about to change in a significant way as a response to these ither market forces.

https://tradingeconomics.com/united-states/housing-starts[/quote]

Not to mention there will be fewer buyers in the market simply due to rising interest rates. Crazy low interest rates drew an artificially high number of buyers/borrowers into the market. Plus people who would have otherwise waited to move to a bigger house decided to stretch their budget sooner than expected because the pandemic lockdowns made people yearn more bigger spaces. Now that those factors are disappearing, a big percentage of the buyers who have been bidding up prices will also disappear. [/quote]

Why didn't housing prices collapse in the 1970s and 1980s?[/quote]

They did. More so in some places than others. Mostly, it just became very difficult to sell a house at all. Double digit interest rates will do that.

https://www.longtermtrends.net/home-price-vs-inflation/[/quote]

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