The fast-growing housing market, with ever increasing prices in every section of the country, may be reaching a point of implosion, suggest some industry experts attempting to answer the age-old question: how high is high?
A new report issued by the Federal Reserve Bank of Dallas contends that “evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s.”
The report goes on to note that “reasons for concern are clear in certain economic indicators,” adding that both rents and overall house prices “appear increasingly out of step with fundamentals.”
According to the Federal Reserve Bank of St. Louis, the average sales price of a home was at $278,000 a decade ago but saw a dramatic increase during the initial months of the pandemic in 2020, hitting the $375,500 mark.
One year ago, the rate stood at $418,000, on the way to the just under $508,000 seen during the first quarter of this year.
Home prices have seen their greatest increases in the West, with prices up on average anywhere between 24% and 48%. The smallest increases, at 12%, are recorded in the Midwestern states of Michigan, Illinois, and Ohio.
The site Realtor.com, noting the non-stop rise in home prices over the last year, contends: “It’s been uncomfortably reminiscent of the run-up to the housing bust that blew up the world’s economy roughly 15 years ago.”
Noting that a housing bubble occurs when “home prices become artificially inflated,” the publication Business Insider says a housing bubble today is not comparable to what happened leading up to the Great Recession.
Then house prices saw drastic increases, but availability was anything but an issue. “Today,” says the publication, “the problem is a bit simpler: housing supply is unable to meet demand.”
That equation is echoed by the site Bankrate.com, asserting: “There’s one obvious reason home prices won’t crash—the supply of homes dramatically trails demand for homes.”
Nevertheless, the site adds that a market correction, if it is to come at all, will most likely play out geographically: metro areas experiencing population growth and inventory shortages are not expected to see a sudden decline in home prices.
But metro areas with “with shrinking populations and plentiful supply could experience a crash.”
By Garry Boulard
