Are we in the real estate bubble?

FILE – Sign exhibited near the house for sale in Pittsburgh, January 4, 2019 (AP Photo / Keith Srakocic, File)

(NEXSTAR) – At the end of 2021, house prices were 18.5% higher than a year ago. CoreLogic. And if you think prices can’t be higher, they’re done. According to the National Association of Realtors, in January 2022, house prices rose again as inventory reached a record low. The average home price has exceeded $ 350,000 nationwide.

With such astronomical figures, it’s hard to believe it’s not a bubble with housing, but real estate analysts agree that’s not the case. That’s what’s really going on.

What is a housing bubble (and how is it different)?

The housing bubble is characterized by a significant jump in house prices that is unrelated to other economic fundamentals such as labor markets, income or wealth, explained Stuart Gabriel, professor and director of the Winter Real Estate Center at UCLA.

We have, of course, seen the first part of this definition – a significant surge in house prices – but there are obvious economic factors driving this increase, Gabriel said, referring to various side effects of the pandemic:

“It is a very significant purchase of second homes by those who could afford it … and in the early stages of the pandemic, urban dwellers in high-density settlements sought refuge in suburban or suburban areas that had greater falls between households, less density and more recreational benefits appropriate to the security of the pandemic and the like. ”

Basically, the pandemic caused a demand for lifestyle housing. Combined with super low interest rates, prices have started to rise – and still haven’t stopped.

Gabriel admitted that there was a speculative purchase of housing, as in hot markets. However, he said that this is not exactly the “vast majority” of activity in the housing market, which makes him believe that there are no bubbles.

Will housing prices fall?

“Just because we don’t think we’re at the center of a speculative bubble doesn’t mean housing prices can’t go down,” Stewart said. “And in fact, you know, one of the chances of getting very significant demand for housing in recent years has been record low mortgage interest rates and the availability of cheap credit.”

These rates will change as the Federal Reserve seeks to curb inflation in 2022. Higher mortgage interest rates will make housing more expensive, which should cool the trend toward soaring housing prices, Stewart said. But he did not predict a big fall.

“There is a very, very high demand for everything that is affordable,” Stewart said. “We just have such a shortage of housing, especially affordable housing, that units will continue to come with a surcharge.”

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