![]() $15 an hour isn’t enough: U.S.A more pessimistic scenario is that the end of the stamp duty holiday will puncture a huge mortgage credit-driven housing bubble that will ripple through the financial system and damage the nascent Covid recovery.With A.I., business leaders must prioritize safety over speed.A tale of two governors: COVID outcomes in Florida and Connecticut show that leadership matters.More must-read commentary published by Fortune: But a drop or flattening in home prices is a far cry from the crash we saw during the Great Recession.Īli Wolf is chief economist at Zonda. Further, other economic, financial, and confidence challenges could also result in a drop or flattening of home prices, even with solid buyers in place. The single biggest risk to housing-rising mortgage rates-is a real possibility in the next year, and that could bring prices down. While today’s prices can be justified, it is unwise to believe they can only go up. Others believe that the frenzy has gone too far, and even some that are financially able to buy a home have reached a tipping point and are balking at prices.Īs we move forward, we can take comfort that many of the mortgage guardrails in place are working, with creditworthiness strong and speculative lending largely absent from the market. This thought process is leading to bidding wars and further upward pressure on pricing, which is resulting in first-time buyers and lower-income home shoppers finding themselves priced out of the market. People are fearful that if they don’t buy today, they may miss their chance at homeownership forever. The fear-of-missing-out mentality has also returned, which has resulted in some making rash decisions. Home shoppers are feeling the impact of investors active in today’s market, especially at the lowest price points. While all-cash sales are up from 16% last year, they are still down from a high of 35% in 2011. ![]() One common measure of tracking investor activity is all-cash sales, which represent 23% of total transactions. Investors, a staple of the last cycle, are back. However, there are unhealthy signs in housing as well. Mortgage credit availability is starkly tighter than in the mid-2000s and the often more risky adjustable rate mortgages represent less than 5% of total purchase and refinanced loans compared with over 35% at the peak of the last cycle. Others became wealthier on a relative basis as remote work led to increased migration, often from higher cost areas to lower cost ones.įurther, safety measures have been put in place since the Great Recession to help prevent a similar housing collapse. Some Americans became much wealthier over the past year following a 31% run-up in the S&P 500 and a nearly 20% jump in home equity. The supply and demand mismatch pushed prices upward, but that was just the tip of the iceberg for rising home values. Homebuilders, most of whom became more prudent following the last cycle, were cautious with how many homes they were bringing to the market, resulting in equally tight new home inventory. The jump in homebuying demand hit right as existing housing supply declined rapidly for a variety of reasons, including fear of COVID-19. ![]() The lifestyle change brought on by the pandemic caused many Americans to reassess their living arrangements, including some renters that turned into house hunters and some existing homeowners that sold to move into a larger home. were already supporting housing growth and the desire to own only increased as people saved more and spent more time at home. Unlike the last housing boom, one could argue that home price growth since the start of the pandemic was justifiable. Rising prices alone, however, are not a sign of a bubble. ![]() Moreover, a bubble requires conditions that would permit a crash-that is, a period of asset prices falling faster than fundamentals. A bubble is present when the price of an asset is rising faster than the fundamentals can justify, often driven by overly optimistic speculation or loose financing. In order to determine if the current housing market is in a bubble, one needs to ask what constitutes a housing bubble. ![]()
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