With even Bank Of America predicting the US economy will face a period of hyperinflation due to a major spike in commodity prices, the prospect of a stagflationary blow up just as seen in the 70s is worrying economists that sooner rather than later we will see the housing market boom turn into an epic bust. Building material prices have been skyrocketing and on the other hand, the US housing inventory is still at a record-low level. The market imbalances have never ceased to get worse, and bubble deniers are having a hard time explaining why the steep price increases are somehow justifiable. In a recent article, experts with ZeroHedge argued that the home price surge can be mainly attributed to the trillion-dollar government response to the current recession, in addition to record-low mortgage rates and a mass exodus away from major urban areas. Redfin recently divulged a market update revealing that, in May, median home sale prices rose to an all-time high of 18%, with 58% of all houses selling within two weeks of listing, also a record.
In face of this grim “hyperinflationary” landscape, one of the few hopes that were still standing for those whose incomes did not similarly “hyperinflate” and who were at risk of becoming unable to afford a roof above their head was the fact that rent prices have been allegedly “tumbling” in recent months. The truth is that the official data does not represent what the market has been actually going through at the moment, as rent prices have actually started to soar. In the article, the experts disclosed that American Homes 4 Rent, which owns 54,000 houses, increased rents by 11% on vacant properties in the month of April.
Invitation Homes, the largest landlord in the industry, also raised rental prices by a similar amount, according to one of the company’s executives on a recent conference call. A couple of days ago, Bloomberg also warned that “record occupancy rates are emboldening single-family landlords to hike rents aggressively, testing the limits of booming demand for suburban rentals”. So while the housing price bubble has continuously expanded over the past year, and as result, it significantly worsened the affordability crisis, putting homeownership out of reach for most Americans, on the flip side, rents remained flat for most of that time, therefore, the new increases “may add to concerns about inflation pressures” as Bloomberg so eloquently puts it. “Companies are trying to figure out how hard they can push before they start losing people,” said Jeffrey Langbaum, an analyst at Bloomberg Intelligence. “And they seem to be of the opinion they can push as far as they want.”
Apparently, those companies were right, because the nationwide rental price increase from April to May marked the largest single-month increase ever recorded, according to the June Apartment List National Rent Report, which goes all the way back to January 2017, with the national rent index jumping 2.3 percent. In May, we have hit an unprecedented level, as our national index has surpassed the level where economists projected it would have been if the health-crisis-related price declines of 2020 had never happened. That is to say, as the housing price bubble doesn’t have much more room to keep growing, the effects of the market’s woes are spilling over the rental market, a clear sign of the unsustainability of the current pace of home price appreciation, and of course, a major red alert that a notable real estate price correction is looming.
Surging rents were the missing piece needed to prove how extremely unbalanced is the current housing market, to the point of reverberating the effects of the home price bubble into a market that, for the most part, remained untouched by the health crisis. And as inflation grows across more and more sectors, the experts say we’re about to see some truly epic numbers in the coming weeks. With Americans struggling increasingly more to either buy or rent a home, bubble deniers may overlook the risks as much as they’d like, but all the evidence is there. Prices have to face a reckoning, and the more inflation pressures mount, the more obvious it gets that a housing market crash is going to happen. Whether the bubble will burst unexpectedly or prices will continue to grow until the market reaches a point of complete breakdown, only time will tell. But week after week, we present you with more proof that things simply cannot stay as they’re right now for much longer. So don’t fall for those rosy forecasts, as it is much better to be prepared to handle the ugly truth.
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