With home prices surging by 10%, far faster than wages, people are wondering if we’re looking at another historic housing bubble amid the pandemic.
Millions of Americans are still out of work, millions more may be facing evictions and foreclosures once the CDC moratorium is lifted, and yet, real estate prices are climbing higher practically each day.
Are we looking at another housing bubble like the 2007-2008 crash?
One expert thinks not.
Mark Stapp, a real estate professor at Arizona State University begs to differ.
He argues, "The definition of a bubble is that when it pops, there's nothing there," Stapp said. "That's not this case. There's very real demand that exists and that's what's causing prices to increase."
The basics of economics, supply and demand, seem to be driving costs higher in this case, not sub-prime loans as were the case of the 2008 crash.
Chief executive of Norada Real Estate Investments in Laguna Niguel, California, Marco Santarelli, offered this, "For over a decade, we've had a chronic lack of supply of housing," said. "We need 1.62 million units a year to keep pace with organic demand, but we produce significantly less. We're about 370,000 units short each year."
Historically low interest rates that will remain low through 2022, rising home prices, the trend of millions being laid off from work and overall economic and health uncertainty has many homeowners sitting in their homes instead of selling.
All these factors, and possibly more, are contributing to the growing shortage of housing inventory and thus, rising housing prices. In fact, builders can’t keep up with demand and are actually using a lottery system with material suppliers to determine which builders get supplies in order.
These conditions make it a great time to get into the flipping game, for new and experienced real estate investors.
These rising prices are especially problematic because incomes are not keeping pace with rising costs. Home prices have appreciated by more than 60% since November 2012, while incomes have only risen by 20% in the same period.
This is why analysts rightly argue that home ownership is becoming more out of reach for buyers, year over year. It’s no wonder why its estimated that up to 51% of adults aged 20 – 29 are still living with their parents.
Stacie Lee, a real estate sales associate with Berkshire Hathaway HomeServices in Phoenix told USA Today, “Whenever something goes on the market in Phoenix, the showings are usually back-to-back and closing comes within a matter of days.
“Many homes go for $30,000 to $40,000 over list price and a few homes in the mid $300,000s have sold for $100,000 over list,” Lee said. “A lot are going for cash. Cash is king right now.”
Lee added that she had 70 people show up for an open house over the summer and had 15 offers in the first couple of hours. The home sold for $375,000 and is now back on the market at $550,000.
“There’s a lot of investors flipping homes here,” she said.
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