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Americans are in a wild panic buying frenzy for homes despite skyrocketing prices, which has been worrying experts that the fast growth of the housing price bubble and historically low inventory levels might lead the market to a sharp correction way sooner than expected. Panicked buyers are taking part in bidding wars and offering hundreds of thousands of dollars above the asking price, but on the flip side, a large chunk of the population is getting priced out of the market and affordable housing is nowhere to be found. House prices are soaring like never before even as the economy is still facing the worst slump since the Great Depression.
As we previously discussed, the frantic rally is being fueled by low-interest rates, which is keeping mortgage payments more affordable, cushioning the housing market from the current recession. But it wasn’t that long ago that real estate experts were expecting the worst. At the beginning of the health crisis, everyone was predicting home prices would collapse given that this is what typically happens when economic downturns occur. But due to the extraordinary monetary response to the sanitary outbreak, markets have been artificially sustained and asset valuations were turbocharged. However, the current pace of home price appreciation is getting increasingly unsustainable, and mortgage rates are moving upward as inflation fears have started to mount, meaning that the current housing boom is headed to a bust.
Real estate analysts have been reporting this to be the most competitive market they have ever seen. According to the National Association of Realtors, the number of sales of existing homes reached the highest level since 2006 – with the US housing inventory dwindling by over 50 percent, while prices rose 9% from pre-outbreak levels, and the median price of an existing home hitting a record high of $329,100 in March. In one alarming example of how crazy the market has become, in a CNN article, realtor Ellen Coleman reported having received “76 all-cash offers on a $275,000 fixer-upper in suburban Washington D.C. within three days of listing the property. The four-bedroom, 1,800 square-foot home sold for $460,000, a 70% increase on the asking price”.
Redfin Chief Economist Daryl Fairweather, “we are in a record-breaking housing market with asking prices at an all-time high, median sale prices at an all-time high, the share of homes selling over list price at an all-time high, and homes selling faster than ever before: 58% under contract within two weeks of listing and 46% within one week of listing”. “Ask just about any real estate agent, and they’ll tell you they’ve never seen a market this hot,” he said. Another example of how the panic buying trend has been pushing prices through the roof can be seen in Southern California, where extreme prices are being reported in all corners of the region. For instance, in Orange County, with the highest spike on record, having registered a 38.5% increase in sales leading the median price of a home up by 10.6% to shocking $835,000.
Vanessa Stone, an Enfield real estate broker said that in the 32 years she’s been selling real estate “the current frenzy surpasses even the hot home-selling market of the early 2000s before the crash of 2007″. How much longer such extravagant gains will continue is a question worrying both buyers and sellers. Americans are already sensing something is wrong in the market and recent date shows how home-buying sentiment has collapsed to its weakest since 1983. Although bubble deniers have been multiplying lately, realtors are frequently comparing the current market rally to what they have witnessed during the peak of the 2006 historic real-estate bubble.
But just because the market looks different on a macro level, doesn’t mean this time will be different, as many want to believe. As we well know, blind believers frequently end up very, very frustrated when they choose to ignore the warning signs that are flashing right into their faces. And if you don’t want to get caught off guard, don’t take the opinion of those who make their living by selling the idea of a rose-colored reality as the gospel. The next housing market crash is fast approaching and all evidence is there for you to see. So beware of those weirdly upbeat forecasts or you might end up bitterly disappointed.