We’re going to talk about two things.
First, let’s look at what some of the 32 experts who chimed in on the real estate market are saying about the housing bubble.
Then, we’ll look at CoreLogic’s updated data from April and May of 2022, and see how some markets in some areas could be at risk of home prices dropping.
This is from an article by Insider. It is behind a paid wall, but it could be worth checking out. If you want to read it, I’ll link to it here.
The title of the article is “Are we in a housing bubble? We asked 32 experts, and most said no. They explain their answers and offer insight about what we could see with housing prices in the coming months.”
According to the poll by Insider, “Is the US experiencing a real estate bubble?” Out of 32 experts, six said "yes," four said "maybe," and 22 said "no."
These insights from three experts with different stances really stood out to me.
My favorite one is what Rick Sharga, Executive Vice President of Market Intelligence at Attom, says. He answered it the way I probably would have done so.
According to the article, Rick says, “Well, first let’s all be honest about this: The only time anybody really knows if you’re in a housing bubble is after it bursts. So no matter how smart any of us think we are, we’re all kind of speculating.”
I laughed when I read this because it is pretty true. Who knows what can happen next, right? But, with the data that we do have, we can make more intelligent speculations as to what will happen.
The next one is from David Rosenberg, President, and Chief Economist at Rosenberg Research. Even though it is typically different from what I believe, and if you follow David, he’s very bullish about the current situation actually being a bubble.
Here’s what he says in the article: “We are in a housing bubble that rivals or even perhaps takes out the mania that took hold in the mid-2000s—the leverage is less acute, but the price action is equally parabolic and out of sync with the underlying fundamentals that typically drive residential real estate valuations.”
Google David Rosenberg if you want to know more about what he says. He has been very adamant about this being a bubble, and I’ve been reading a lot of his stuff lately.
I’m still more in the middle, leaning toward this not being a bubble, but he has pretty good insights. Go check him out.
Last, Don Layton, Senior Industry Fellow at Harvard’s Joint Center for Housing Studies, makes a very good statement here.
In the article he says, “Many people like to fight the last war. The bubble in 2007 and 2008 is universally regarded as stemming from loose lending and a generative speculative mania in housing.”
It makes total sense, right? Because we’ve been comparing the current housing market situation to the housing bubble in 2007 and 2008 a lot.
Go read the article to see what all 32 experts have to say. Both sides are represented, and they all rely on data to support their claims.
The next article is from Fortune, and I really want to go deeper into this because it shows how the market is shifting a little bit just from April to May.
Fortune magazine has just become my favorite place to find real estate news. I’m really surprised at the quality of journalism they do when it comes to research for the housing market.
The article is titled “The odds of a home price correction just spiked—this interactive chart shows if your local housing market is at risk.”
As Fortune says, “There's no way around it: if the Federal Reserve is going to get runaway inflation back under control, it's going to cause some economic damage along the way.”
We’re already seeing this–the Fed has been trying to push down on inflation by raising rates, and we’re also seeing some damage with the stock market.
“We're already seeing the U.S. housing market slow down in the face of spiking mortgage rates. Mortgage applications are declining, fewer listings are getting multiple offers, and inventory levels are rising again. However, that's a deceleration—meaning prices are going up at a more modest rate—not a price correction,” Fortune continues.
This is the truth, and we’ve discussed this in the past few weeks. We still see multiple offers, just not as many, and inventory is catching up in some parts of the US.
But note that what’s happening is not a price correction. Home prices are not just going to fall all of a sudden and you can’t get a home worth $800,000 for half the price in the coming year. This is different.
“CoreLogic looked at 392 U.S. markets in April and found that 17 regional housing markets had a greater than 40% chance of seeing local home prices decline over the next 12 months,” says Fortune.
This is what changed: “Now 70 regional housing markets have a greater than 40% chance of home prices dropping over the coming 12 months.”
And that is what got my attention.
I wanted to see what was happening, and according to the article, the “research firm assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels.”
In the interactive map Fortune presents from CoreLogic, these are the groupings used for the May analysis:
Fortune says, “CoreLogic categorized only four markets as having a "very high" likelihood of a price drop: Bend, Ore., Prescott, Ariz., Lake Havasu City, Ariz., and Bridgeport, Conn. (i.e. Fairfield County, Conn.).”
Boise, Idaho (where many people from Los Angeles, California and surrounding areas have relocated) is high, but not excessively so.
When you look at the map, you'll notice that the majority of the red and pink areas (very high and high) are where people moved from the start to the middle of the pandemic.
The only place where people move that isn't red and pink is Florida. And we know that area, particularly Miami, is still extremely hot—prices are still rising, and multiple offers are still common.
Remember that this is all regional. Real estate at any point in time is all regional. One area could be dropping in prices, and another could be rising with multiple offers. Saying that the whole country is having a challenge would be erroneous.
Most of the interactive map shows low and very low areas (chances are very high that those places won’t be affected at all), and very low in a lot of areas in Florida. A lot of people online and in the media speculate that Florida grew so much that there’s a price correction coming soon. But they are not taking into consideration the massive lack of inventory.
According to Fortune, “While CoreLogic finds the odds of a home price correction are rising, it still believes nationwide home prices will inch higher over the coming year. Between March 2022 and March 2023, CoreLogic predicts U.S. home prices will rise another 5.9%.”
You might notice that from month to month, things are changing because we’re getting more data. Plus, we don’t even know if we are in the middle of a recession or not. And if we are in a recession, how deep is the recession? We won’t know until those numbers are out at the beginning of July.
Multiple offers are still being seen in California, but they are slowing down in other areas, such as Atlanta.
Keep paying attention to what is happening. Do not freak out. Do not listen to the alarmists. Look at the data and formulate informed speculations and decisions from facts.