Have you looked at the housing market lately? Have you tried to buy a home or know someone who’s trying to buy? It’s crazy out there right now!
Depending on the location, single-family homes are selling in just days. Columbus OH’s average is 8 days. Denver: 9 days. Cinci: 11 days. Nationally the average is less than 1 month (25 days). It is also not uncommon to hear about homeowners getting more than their asking price / appraised value due to bidding wars and the like. Buyers are taking more risks by waiving the customary home inspections. It is clearly a seller’s market out there!
Demand is currently high. Clearly, this is driving prices higher and higher! Is this all going to come crashing down? Will this “bubble” in pricing “burst”? What’s going on?
Like most things, there are multiple answers to these questions. Here are the big trends and why we are likely NOT in a housing bubble:
The generation buying the most homes are millennials (25-39) at 39%. Millennials got off to a slow start since many graduated from post-secondary schools during the “great recession” in the late 2000s. Many got out of college or trade school and found it very hard to get a good-paying job. That has changed post-Covid19. Many are now working and saving and are ready for homeownership.
The #2 generation of home buyers are baby boomers (55-74) at 28%. With the stock market climbing since early 2009, the savers and investors among this group finds themselves with money enough to buy that vacation home or to upgrade/downsize. So, believe it or not, this generation is driving a significant part of the demand for homes today.
The Federal Reserve continues to keep the money supply high. Interest rates are low. Between the great recession and the pandemic, interest rates have been at historic lows. For the foreseeable future, Fed leadership will work to keep interest rates low, even if hints of inflation pop up.
Builders have not been keeping up. Some of this was Covid19 related, having to do with getting workers. Some were due to sawmill employment being down. This is partly due to builders not ordering as much supply because they didn’t predict that Covid19 would INCREASE their demand; but also, some was due to weather and fire issues in the northwest US where much of our timber comes from. All this tends to drive prices of the house’s raw materials up, worrying some home builders about buying too much high-priced wood.
Covid19 made “WFH” an acronym! Pretty much all workers who COULD work from home did. When people are working from home, they noticed that they didn’t have such a great work environment because they didn’t have that extra “bedroom” that they could convert to an office. People are upgrading!
Will this bubble burst? Maybe, but not likely anytime soon. Most experts expect housing prices to stay high and increase through 2024 and likely beyond. The rate of price increases are starting to slow, but there will likely be a supply/demand challenge for years, barring any real surprises.