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The meteoric rise in home prices continues to fiercely inflate the housing market bubble, but everyone – from realtors to financial analysts, and even buyers – can see that the break-neck pace of price appreciation isn’t sustainable for much longer. Whether due to a fatal hike in mortgage rates, construction issues, or a historic inventory shortage, a housing bubble burst is looming on the horizon. Prices will have to face a major correction as increasingly more Americans are being ruthlessly pushed out of the market.
The fact that this unprecedented home-buying frenzy is occurring amid one of the worst economic recessions this country has ever experienced is showing us how this boom is being artificially fueled by record-low interest rates, but since inflation risks are mounting and the Federal Reserve has already started to elevate rates to levels not seen in almost a year, it seems that a devastating housing crash is fast approaching and that’s what we’re going to analyze in this video.
In less than a year, the average home price in the United States jumped a whopping 16 percent, according to the National Association of Realtors, and the increase was even higher in some regions of the country, such as the Northeast and West, which are both up 21% from last year. On the other hand, housing inventory remains at record lows.
Buyers have engaged in a wild frenzy to find a new home. Recent reports are outlining that most homes don’t stay more than 2 weeks on listings and oftentimes they are sold way above listing prices. In California, a $400,000 house had 122 offers in 2 days, which highlights buyers’ desperate run regardless of skyrocketing real-estate prices. The absurd number of offers is a symptom of a market artificially stimulated by low mortgage rates, which has been contributing to keep demand heated, and therefore, to continuously fuel the housing price bubble.
A recent realtor.com report revealed that, right now, the national median home list price is at $370,000. Meanwhile, to become a homeowner today households have to possess at least double the wealth they had a decade ago. The break-neck pace of home price appreciation is causing disturbing distortions all across the market. Real-estate firms are worried this out-of-control bubble could soon trigger a housing crash, particularly because the affordability crisis is keeping potential buyers out of the market.
One of the main reasons this is happening is due to the utterly reckless monetary policies of our leaders. Although the near-zero interest rates supported the housing rally and the formation of several asset bubbles, considering that our money supply has almost gone vertical, climbing from 4 trillion dollars to 18 trillion dollars in just 12 months, inflation fears have started to arise. In turn, the Federal Reserve already has begun the process of rising mortgage rates to prevent the economy from overheating.
Consequently, most home buyers will have to face some tough choices: they will have to either lower their budget to purchase the property they want or completely exit the market as the dream of owning a home simply isn’t within their means anymore. That will undoubtedly add extra pressure on the rate of home price appreciation, since its clear unsustainability might spark a disastrous housing market crash. Furthermore, one of the sharpest analyses of this splendid bubble comes from Wolf Ritcher, on WolfStreet.com, who provided a more accurate way to evaluate the extension of this crisis by looking at the National Case-Shiller Home Price Index.
The most disturbing data come as the index scrutinized the surge in home prices over the past two decades. In January 2000, the index was set at 100. Now, it is at 236, meaning that house prices have soared on average by 136% since January 2000. Moreover, as Ritcher explains that “no housing market can produce enough homes when homes are massively used as vacant investment speculations. Because this creates an artificial shortage,” citing homeowners who are waiting for the bubble to inflate even further so that they can accumulate equity and sell their house when the bubble reaches its peak.
The Fed may have created this false impression that they will be able to move heavens to continue to inflate every conceivable asset bubble, but in real terms, we’re very close to hitting our monetary policy limit. And as money stops being poured into the markets, mortgage rates are forced up, and other asset bubbles start busting, prices will face a correction and the value of homeowners’ assets will inevitably fall. There is no shortage of warnings that a dramatic housing market crash is ahead, and we should all watch very closely the next unfoldings of this crazy home buying euphoria here, on Epic Economist.
Epic website: https://www.epiceconomist.com”
