“It’s the bubbliest of markets.” I thought that was a great title.
Some people are still saying this about the housing market—very bubbly. But, we are also seeing other people finally saying that there is no crash and that it will not happen as of right now. It is refreshing to see some common sense based on actual data.
Now, I’m not saying that the market isn’t going to come down a little in some places because real estate is regional. However, a housing crash is unlikely to happen as long as interest rates remain where they are.
In fact, based on some data, even with the interest rates being as high as they are, we’re still seeing prices go up in some areas, and people still buy those homes at that price.
The other crazy part of this is that the rental prices are so high.
The NY Times wrote a piece about homeowners starting to rent again. According to the article, “As a general rule, it’s a bad idea to try to time a market, and housing is no exception.”
That’s what a lot of these people mentioned in the article are trying to do. They think that home prices are going to go down and that it is a good idea to jump out of the market and rent instead.
The only challenge when doing that is when you fail to consider that rents might go insanely high, like in Miami. The rental prices there increased by about 41%, and indicators show they might go up higher still.
So why is everything on the rental side getting more expensive, you might wonder? These short-term rentals on Airbnb, in my opinion, are a contributing factor. These large corporations move in to purchase properties and convert them into short-term rentals.
The catch is, you are probably not going to see these properties back on the market for a very long time because they are profitable. That in turn pushes rental prices up, because it is removing these properties from being leased on a yearly basis or from being bought.
So, the demand, as far as first-time homebuyers are concerned, remains high. Because these big corporations are grabbing these properties and taking away opportunities from first-time homebuyers to own a home. And since it is profitable, these corporations won’t let go of these properties anytime soon, keeping re-listed inventory low for those who are still looking for homes.
That’s a big factor in why rental prices (and home prices) are still increasing despite the rates going up.
Axios came up with an article titled “Home prices keep rising, even as the market cools,” and it has a lot of great data on the topic. Looking at the number of homes sold from June 2012 to May 2022, you’ll see that we are at 5.4 million houses. It is higher than the average over the last decade.
“Perhaps you thought that the real estate market was all about location, location, location. Well, it's actually also about supply, supply, supply. The U.S. doesn't have enough homes to meet demand — even now, as fewer people want to buy in the face of rising mortgage rates.” (Source: Axios)
This is what I’ve been telling you since day one: It is supply and demand. It is that simple, sometimes. Because guess what? People want to live in houses; it is a matter of survival, especially for those starting a family—that’s the American dream, and it’s a dream all over the world. It’s just a fact.
A 6.5% interest rate is not a lot (although it hurts a bit), and it is still less than inflation.
Let’s take a look at a bigger scale: worldwide. This Bloomberg article is titled “The World’s Bubbliest Housing Markets are Flashing Warning Signs.”
In the article, they rank the top 30 “bubbliest” housing markets, and the top seven are New Zealand, the Czech Republic, Hungary, Australia, Canada, Portugal, and the US, with Italy and South Africa at the bottom of the list.
They also showed important stats on price-to-rent ratio, price-to-income ratio (important to note in terms of affordability), real price growth (%), nominal price growth (%), and credit growth (%).
In the US, these are the stats:
These are also important to pay attention to. Some people assume that it is only happening in the US, but it is happening all over the world too.
We are in a world economy now. Because of globalization, what happens in one country affects other countries too.
The US is facing a supply and demand issue, plus interest rates are rising. As long as interest rates remain where they are, we won’t see a crash—what we’ll see is a softening of the market.
Data on the national housing market from Altos Research, as of June 24th, shows that it is a seller’s market overall (but every area is a little different). The median list price has slowly gone up and is now at $454,000, and the median price of new listings is at $425,000. These are listing prices, not sold price data.
The average day on the market is 57 days, and the price decrease has gone up 27% (which is normal in the summer markets too, when more homes are going up for sale on the market).
Relisted homes, which are homes on the market that were bought and re-sold later on, are only 2%. This shows that a lot of bought properties almost don’t go back up for sale: people are staying longer in their homes, and a lot of properties owned by corporations are being held long-term. A lot of sellers, now that we are at a 6% interest rate, are thinking twice about selling their homes and moving.
So, now we have another supply issue that gets rarely talked about: possible sellers are backing out, or choosing to wait, keeping inventory low amid the high demand in the market. National inventories are up a bit at 418,000 homes, but that is still not enough.
Lastly, rent prices. The median rent is $2,260.
Places like Miami, which have a lot of incoming people buying homes (regardless of whether to rent them out, short-term rentals or to live in), have higher rent prices.
When rents are high, people tend to find owning a home more attractive. Because as homeowners, you get tax incentives, plus you own the property you are living in instead of just giving out money to the landlord. And if you buy, it becomes more profitable for you in the long term (like in the next 10 to 15 years).
“How bad is it? According to the RentCafé online listing service, an average Miami apartment of 887 square feet now rents for $2,132 a month. Compare that to Jacksonville, where an average apartment is 965 square feet and costs $1,453 a month. To be sure, there are lower priced rentals in Miami starting at $1,189, but pricier apartments cost over $3,100, with well-off newcomers competing for luxury apartments in neighborhoods with good schools.” (Source: Route-fifty.com)
Competition for rentals is real. Yet we are still hearing talk about foreclosures.
For those of you asking about foreclosures, take a look at this data from MBA. Of the loans exiting the forbearance program, 37% were paid in full, 44.6% were workouts or repayment plans, and only 18.4% were still in trouble. Of the 18.4%, 17.1% have no loss mitigation plans, while 1.3% are short sales, deeds-in-lieu, and repayment plans.
Black Knight also has the same data that can help you fully understand what is happening with foreclosures: there aren’t that many. There are some that will come up, especially if unemployment goes up.
If you want to see, here are the top 10 states with the highest foreclosure rates as of June 2022, according to Yahoo! Finance. This is based on the data from ATTOM on foreclosures during Q1 of 2022.
These numbers are significantly lower than historically.
A NY Post article titled "US housing market price correction to hit ‘coast to coast,’ economist warns, quotes Mark Zandi, Chief Economist at Moody’s Analytics.
“I just don’t see the kind of mortgage defaults and distressed sales that would be necessary for big declines in housing values. That’s when you get crashes, when you have lots of foreclosures and a lot of distressed sales,” Zandi says. “That’s just not going to happen.” (Source: NY Post)
So, let’s stop scaring people with baseless talk about foreclosures that are coming that will cause the housing market to crash. Look at hard evidence and don’t let emotions drive you.