Record-high housing prices might be fueling homeowners and real estate investors hopes for brighter days in 2021, but experts are alerting that some dark clouds are ahead for the U.S. housing market. The unprecedented demand is being prompted by the growing work-from-home professional landscape and the inability to travel, which have resonated in record-high property sales, and in a significant pricing bubble that is already being registered in several major cities across the nation.
However, the unsustainable price increase could lead to a more dramatic decline when the housing market crash happens. And in this video, we’re going to show you by the charts how the U.S. housing market has entered the most splendid bubble in history, and when it bursts it could make 2021 the most devastating year to buy homes in America.
According to the Case-Shiller Home Price Index, nationwide the prices of single-family houses climbed 8.4%, the biggest year-over-year increase since March 2014. The index is based on the “sales pairs” method, which compares the price of a property that was sold in the current month to the price of the same property when it was sold previously, going back decades. As compared to the National Association of Realtors’ house price index, which is as a function of “median prices,” prices jumped 15%.
Amongst the main drivers for this considerable spike in prices is the reduced housing supply and the record-high demand, as well as the extension of mortgage deferral periods. By contrast, related to all the previously mentioned, high unemployment rates may reverse both elevated prices and supply shortages. At this stage of the crisis, the bleak economic outlook for the forecasted 20 million out of work Americans might force unemployed owners to sell their homes, increasing supply and keeping demand for housing down.
But one factor that has been keeping the market afloat is the record-low interest rates since borrowing has never been so inexpensive, which of course, fuels the demand for housing by making mortgages more affordable. The Fed has been constantly handing trillions of dollars to the markets to keep rates down, ignoring the massive bubble the market has entered and the consequences of it on the debasement of the dollar’s purchasing power.
Moreover, the shift to working from home arrangements and the popular preference for homes over apartments or condo towers, as well as a dose of panic-buying have also contributed to keeping the housing market heated. As Wolf Richter reported in Wolf Street, several major U.S. cities are registering skyrocketing prices, with Los Angeles having the most splendid housing bubble of them all.
The report also highlighted that in Portland, Boston, Tampa, Denver, Las Vegas, Phoenix, and Dallas price surges in the range of 1 percent in October from September and in a 7 percent average year-over-year were also registered. In essence, as Ritcher explained in his report, the Case-Shiller index tracks the number of dollars it takes to buy the same house over time, thereby, it measured the purchasing power of the dollar in relation to houses. That’s why it is considered as a form of measuring “house-price inflation”. And what all of those charts have shown us is that the dollar has lost its purchasing power with regards to houses at the fastest pace ever.
But as prices keep soaring, fewer people can afford to buy a home, as a record of 34% of young Americans are now living with their parents, even with household formations on the rise. Consequently, that forces younger workers to rent, but as many of them are returning to their family’s homes, that has pushed the rental vacancy rate to all time lows, especially since other age cohorts have been leaving cities by the millions and preferring to risk buying a house, leading the homeownership rate considerably up.
So, between the Fed’s record-low interest rates, Congress’ fiscal stimulus package, a huge debt-fueled demand, and record-low supply the housing market is now much hotter than it was during the apex of the 2006/7 housing bubble. And it goes without saying that this also means it is now set for a much larger crash. This is the world’s biggest asset bubble that we’re talking about. And Powell’s statements show that the Fed doesn’t have any plans to properly address the unsustainability of the housing market, which has been proven in each and every one of these charts, which leave us wondering what will effectively happen to our economy when the collective bursting of both the biggest stock market and housing bubble occurs at the same time. It seems that we’re headed to a major financial catastrophe, and at this point, and by the size of the damage already done – there’s no more escape.