Rising home prices and recession memories have convinced some buyers that a bubble will pop and prices will drop. But it’s just too much demand and too little supply.
Buyer demand and bidding wars are causing soaring home prices across the U.S., prompting “bubble” fears. Still, economists say the housing market isn’t getting overinflated.
“We have a strong conviction that we are not experiencing a bubble in U.S. housing,” Vishwanath Tirupattur, a Morgan Stanley strategist.
Lawrence Yun, the chief economist of the National Association of Realtors®, agrees. “This is not a bubble. It is simply lack of supply.” READ MORE (link to GS Blog on the website)
The rapid rise in prices may be concerning to home shoppers, however. The median selling price for a home is up to $35,000 compared to a year ago, which is the fastest-paced increase since 2006, Tirupattur says.
But this isn’t 2006. Housing inventories are low, credit remains tight, and lenders aren’t issuing risky loans as they did back then. Between 2004 and 2006, mortgages with introductory periods, teaser rates, or balloon payments – comprised 40% of the mortgage market. Those factors are now at only 2% of the mortgage market, according to Morgan Stanley.
Also, the housing market has a record low number of homes available for sale, in part likely caused by the pandemic. According to NAR data, there were 1.07 million homes available for sale at the end of March. For comparison, during the housing bubble, in July 2007, there were more than four times that – 4 million homes available for sale.
Still, while home prices won’t keep climbing at the current pace, they aren’t expected to fall either, economists say.
“We are not at all suggesting that home price appreciation will maintain its current torrid pace,” Tirupattur writes. “Home prices will continue to rise, but more gradually.”
Source: “Why Morgan Stanley Is Convinced the Housing Market Isn’t in a Bubble,” Yahoo! Finance (May 5, 2021) and “The Dispiriting Housing Boom,” Axios (April 11, 2021). Associated Press (2021)