Bursting Talk of a Housing Bubble

It’s been a wild ride.

The housing market these past few months has been nothing short of red hot. So hot, demand is far outpacing supply.

In fact, these are the lowest inventory numbers since the 1970s, a report by NBC shows. There are a number of reasons for this shortage, and they’ve hit like a ton of bricks: cash reserves stocked up from the pandemic, low-interest rate climate, people no longer stuck where they are due to new work-from-home life…the list goes on.

But chief among them is a coming-of-age problem.

Millennials are just now entering the homebuying stage of their lives. And they are a far bigger group than even the biggest generation before them, the baby boomers.

On the most part, they’ve got buying fever. Part of the reason is that they have been stuck inside so long during the coronavirus and they are eager to get out and move forward. That stored-up savings is coming in handy.

That’s led to a shortage that’s driving prices up.

If we dig deeper into the supply route, we find that manpower is scarce right now coming out of that pandemic, so building has slowed. Lumber prices have skyrocketed from production also slowing to a crawl, though it is rebounding now, and prices are falling. Finally, builders have slowed their housing starts to artificially raise prices.

All of which has created a perfect storm: high demand, high prices, short supply.

It’s created an insane market…a bidding war. Sometimes there are many offers on a single property. Sometimes bidding prices are well above the asking price.

And in a few instances these prices were just out of control.

Your brain wants to add this up and think we are headed to a correction, but it’s really not what corrections are made of. There are just not enough homes on the market right now for all the buyers who want one. And prices just keep going up because of that.

It’s like this all over the country right now — and in other places around the world, too. That’s leaving a lot of people in the cold. Retirees used to think they could sell their northern homes and head south and buy down while pocketing the savings to fund their plan. But they’re finding that hard to do now. Housing prices are sky-high all over the country — when they can find a house.

But unlike 2006 to 2008, there probably won’t be any mass foreclosures. There is no zany lending going on. Basically back then, if you had a pulse, you could get a mortgage. The crazy growth in the late ‘90s to 2008 came from subprime lending.

That’s not the case today. More than 70% of loans last year went to borrowers with credit scores of 760 and above, according to the Federal Reserve Bank of New York.

That’s just not foreclosure territory.

We’ll likely steer clear of a crash like that in 2008. That story was written on the wall. Sure, there could be a cooling of the market, but first there will likely be a flood of housing starts with buyers eager to jump in.

They’ll be ready to take advantage of the great rates we’re seeing now, which is the final part of the mortgage story of 2021. The economy was just hammered by the COVID-19 pandemic in 2020, causing the Federal Reserve to bottom out interest rates in an effort to help out. That in turn pushed mortgage rates downward.

Though they are slowly creeping up again, 2020 saw mortgage rates that seemed to hit new lows daily — leading to that frenzy of homebuying activity. And even though those in the business of making predictions agree that 2021 will see higher rates, don’t expect them to jump overnight. The good news is it’s not too late to buy or refinance. Buyers and those refinancing can still get solidly great rates — all in all a great time to do it.

Pat Sheehy