Let’s talk about the housing market and how the media is finally catching on to reality.
I’m starting to see more newspapers, articles, and even videos from YouTubers that are now saying the market looks like it's not going to crash.
So, I interviewed Kamal Gupta for Success Magazine recently, and his book just came out today. It’s called Play It Right: The Remarkable Story of a Gambler Who Beat the Odds on Wall Street.
Kamal worked at Lehman Brothers Wall Street until 2008 and was in the middle of everything when they predicted the housing market crash. I asked him if he thought it would happen again, and he said there is no danger this time.
And that is what I want to set the premise with because I believe that there is no crash happening.
Every economist now finally understands that there is no crash happening, and they have the data to prove it. That is if the market remains where it’s at.
If the rates skyrocket and something crazy happens, like the 2020 pandemic, no one can say what happens next.
But if we stay where we’re at right now? We’re pretty safe.
Fortune released an article with the title “Housing bubble 2.0? Regional housing markets are beginning to look like they did in 2007.”
I love how they emphasized “regional” in the title because a lot of people miss that.
In this article, Fortune says, “Homebuyers, driven by a fear of missing out on home price gains, were stretching themselves well beyond their financial means [in 2007 to 2008]. And zealous lenders were giving out mortgages (or better put, subprime mortgages) to folks who historically wouldn't have qualified.”
And at that time, it was true. Practically everyone barely afforded their mortgages.
“Our ongoing housing boom has more economists pondering the most feared word in real estate: ‘bubble,’’ continues Fortune’s article.
This is what we’ve been hearing back and forth. I’ve been hearing it on every news channel: The WSJ, Fox, CNN, everywhere. Even YouTubers are going crazy! If you Google the word “housing bubble,” you’ll see a lot of articles calling for a 20% housing crash by the end of the year to next year.
But now, finally, I’m starting to see people turn around and say “Wait a second. There is no housing crash.”
This article also supports what we’ve been talking about for the past few months now, that there is no housing crash. Fortune reports, “the Dallas Fed researchers don't think it would cause macroeconomic issues as we saw from the last bubble.”
They also said that the balance sheets are improving, and based on their research, the housing market boom doesn’t seem to be fueled by excessive borrowing.
Fortune emphasizes, “That said, some regional housing markets could be in full-blown housing bubbles.” Now, this is a different story. And I love that they bring it up because, yes, real estate is regional.
In the same article, Fortune reports the metros with overpriced housing markets. The highest is Boise at 75%, followed by Austin at 66%, Ogden, Utah at 63%, and Las Vegas and Atlanta both at 60%.
Fortune also raises an important question, “If a 2023 recession does come and employers finally have the economic power to force staffers back into the office, will those housing markets be at a higher risk of home price correction?”
Now, that is a great question. I don’t know the answer to that one, but it’s great to ponder on that too.
While we're there, think about this. Right now we are at around 5.5%, but if the interest rates keep creeping up, then fewer people, like me, would want to sell. If that happens, even though the demand may be there, it won’t equate to the supply if we stay where we’re at.
Fortune provides us with several graphs in this article. It shows the degree to which regional home prices are overvalued or undervalued, using the statistics from the time the pandemic began in March 2020 and the housing bubble of 2007 around the same month. There’s also a graph from another article by Fortune which is showing how much regional prices are currently overvalued.
If you check those graphs, there are just a couple of areas that are really overvalued. One of them is Boise, Idaho. Another is a tiny little area in Homosassa Springs, Florida. Then some other little areas in between. However, California and New York are closer to not being in danger at all according to the graph.
Looking at the map, what we can hypothesize happened is people from California moved out to Boise city. People from Seattle moved up to Phoenix, Arizona. And then, people from New York moved down to Florida. So, all of a sudden, not only do we have more inflation in these areas, but we also have an influx of property values going up even higher because more people are in there.
For metros like New York and San Francisco, the overvaluation of housing is at around 3% and 13% respectively, according to Fortune.
As you can see, there is no bubble. There is no crash.
Even Moody’s, which has been pretty negative about the housing market recently, admits they couldn’t call what’s happening right now a housing bubble.
And according to Fortune’s report, “In order for it to be a housing bubble, it would need both home price overvaluation and speculation in the market. Unlike in the FOMO-driven 2000s housing market, Zandi doesn't think speculation is driving our ongoing boom.”
“In 2007, many of the nation's most overpriced housing markets were in California, New York, and Florida. This time, Florida has a heavy concentration of overpriced markets, but California and New York (which have both seen an uptick in out-migration during the pandemic) rank much lower,” Fortune says.
This is what I am looking at as a possibility. Now, I’m not saying this is gonna happen.
But Fortune says, in 2007 when the housing market did crash, Phoenix and Las Vegas were overpriced by 59% and 72% respectively. As of March 2022, these two metros are nearing their previous highs (55% and 60% respectively).
If a housing correction does come and the demand in these areas starts decreasing, that’s when we start worrying about these specific areas. Luckily, it doesn’t look like the demand is waning.
Right now, the housing market in most areas is still pretty hot. According to statistics from Current Matters, the average forecast for the market expanding is at 9%.
The data we just looked at shows where the market expanded during the pandemic. We have Boise, Idaho, and different parts of Florida. I’m pretty sure several parts of Tennessee are growing. While the situation is different for each regional market, one thing is clear - there is no housing crash.
Pay attention to the statistics as the market eases in at the end of this year or the beginning of next year, depending on how quickly these rates rise or remain where they are. Because it will tell us how quickly this market will begin to slow and transition into a normal market. Or whether it will be stretched a bit farther.
At this point, we don’t know. All we know is that we are not in a housing crash.
Pay attention to what's going on around you, as well as what economists are saying. Pay attention to the data, because it does not point in that direction.
A recession now? That's different. We'll see what happens.