By many accounts, the housing market seems to be on fire. US Single-Family Housing Starts during the past 12 months reached 1.098 million, the highest level in over 13 years. Median Home Sales Prices of New Homes averaged $353.1 thousand during the three months through April, and the average price of houses actually sold in the US reached a 58-year high.
Many of us can’t help but flashback to the 2000s and wonder if we are seeing another housing bubble forming. Short answer: yes. But it is important to note that this is the early part of the asset price bubble; we do not expect this bubble to pop until we are in the next business cycle.
1. Inventory is low – The existing home supply is at its lowest level in over 20 years. US Single-Family Housing Starts will increase through 2023 but are not projected to surpass the 2006 peak.
2. Liquidity – High savings and stimulus helped increase the liquidity out there. We are not seeing signs of liquidity drying up.
3. Default Rates – Default rates remain low, and major lending institutions are reporting that they are extending their forbearance programs or that the number of customers at risk of falling delinquent is down 90%. The overall strength of the consumer further supports the likelihood that default rates will stay low.
4. Bank lending – In the aftermath of the 2000s housing bubble, stricter lending practices have made it tougher for lending to get out of control again. At the same time, credit does not appear to be going away, and a sudden spike in interest rates would be required to halt the demand for lending.
With millennials aging and advancing in their careers, the demand for housing is not likely to abate in the near term. While the fervor of the past year may vacillate, overall, expect prices to rise and anticipate ongoing rise and opportunities in the housing industry.
- Jackie Greene
Director of Economics