Is the 2021 Housing market an impending Bubble or elevator ride up?

The U.S is experiencing a real estate market that appears to be in uncharted territory. Now, I may want to preface this article by reminding there is not as much as a national housing market, as much as local housing markets, so market conditions may vary from location to location. Let’s break this down!

With my many conversations and interactions from people from across our country it is becoming clear that several things are unfolding on a national scale.

Housing demand

·       The pandemic has changed the way people live and work and this has created many people to need or desire a new home, often in combination with a workspace.

·       Interest rates being at historic low levels with talk of the clock ticking on how long these rates will stay low has created a buying frenzy.

·       Massive inflation threats have people desiring to lock in prices and preserve their net worth before inflation runs out of control.

·       Population is growing (at a net growth rate) of 1 person every 28 seconds.

Housing supply

·       Construction of new homes have been diminishing since the turn of the century. A study by NAR suggest that we have an under-building gap of as much as 6.8 million homes.

·       Post pandemic levels of supplies from Sheetrock to lumber production, from appliances to aluminum for screen frames and everything in between has created problems and slowdowns along with massive price increases. All reducing new construction activity. Reducing housing supplies below an already reduced level of construction. 

·       People who have a desire to move are not finding replacement homes which restricts them from selling creating further tightening of supply.

·       Housing supply is not keeping up with Growing populations.

Short supply of housing along with high demand has created an auction fever never seen before on such a nationwide scale. This of course fuels price increases. As buyers miss an opportunity on a multiple offer situation their auction fever kicks in and buyers are agreeing to prices and terms that are unprecedented and perhaps reckless.

So is this a bubble that we are waiting to pop, or an elevator ride up?

With many lessons learned during the 2007 housing crash, many are justifiably asking are we in a bubble or an elevator ride to the up. To best assess this for your market you may want to consider your local market dynamics. Do they have the 7 fundamentals for sustainable growth? 

My fiancé and I discuss this topic every day. As we invest in real estate and move real estate portfolios for a living, we indeed want to have our fingers on the pulse of this. I have spent the last 12 years of my life analyzing real estate markets and I find this market to be giving mixed signals. While prices are rising so fast and days on market are so quick it validates we are in a strong sellers’ market.  However, the rapid rising inflation and supply and demand imbalance mentioned above have me bullish on certain markets now.

 Housing fundamentals:

Population growth and housing shortages suggest prices will rise until such time the markets become more balanced. What is happening in your market?

I live in sunny Florida, an area that is experiencing unprecedented growth for many reasons (those reasons we will save for another article). The point is with such massive growth and shortage in supply I believe Florida may be in for an elevator ride up. So I am bullish on Florida.

What is happening in your market? IS it growing with sustainable growth triggers?  Is it overheated with just emotional based buying going on?

National Association of Real Estate (NAR) weighs in.

As a member of NAR I always value their input. Currently NAR is raising the flag and asking the government to help get the housing shortage under control. Here is what NAR has to say:

·       Calling the current housing shortage “dire, with a chronic shortage of affordable” homes, NAR suggests steps to take, but warns it requires a “major national commitment.”

·       NAR report calls an “under-building gap” of 5.5 to 6.8 million housing units since 2001

·       What is important now is that we find solutions that will get us out of this crisis and provide more stability in future markets,” says NAR President Charlie Oppler.

·       Recommends lawmakers pursue solutions through financial policy measures, policies aimed at increasing the supply of housing and zoning and permitting policy reform.

·       Read on to see the entire article, you will not want to miss this.

These all being factors, the eye of the analysts are on interest rates right now. Experts are cautiously watching as the FEDS moved its timeline for a rate hike as inflation rises. The Feds need to step cautiously, navigating between a warp-speed inflation for the US dollar, and the public which can screech the breaks on purchasing if trust is breached. The balance is between keeping rates low, which is part of fanning the flames on rapidly increasing property costs and a weakening currency, or raising rates which can choke the economy if done too high too fast. If rates adjust gradually to balance the market, we are more likely on an elevator ride than a popping bubble. Inflation isn’t just raising prices beyond affordability for many, but also weakening the purchase power of the dollar. So while the Feds had vowed to not raise rates for some time, that may not be a promise kept.

Happy investing!

The author’s opinion cannot be construed as tax or legal advice, and may not represent the views of HTBUSA or its stakeholders. HTBUSA is not a legal service or professional tax service. As with any investment, there is an inherent risk in investing in real estate..