It’s hard to know whether to cheer or shudder at ongoing signs of strength in the US housing market.
On one hand, we should be grateful for any and all bright spots in a virus-blighted year that brought the worst downturn for the global economy since the Great Depression. And make no mistake, the US housing market is one candle that’s burning bright indeed.
Additionally, it’s nice that Americans are buying homes. Home ownership is fundamental when it comes to building personal wealth and it’s generally synonymous with family life which, I’m told, is nice too (although being the unmarried isolationist I am, I wouldn’t know).
On the other hand, the housing boom is a product of the pandemic. The proliferation of work-from-home arrangements and the distinct possibility that, for many workers, such arrangements will be at least semi-permanent, have stoked demand. Meanwhile, the realities of pandemic lockdowns and the inherent danger of living in close proximity to other humans when a highly transmissible virus is infecting ~50,000 Americans per day, have prompted a flight to the suburbs.
Rampant de-urbanization and permanent isolation are not generally seen as positive developments. Indeed, I’ve dedicated more than a few (thousand) words to waxing semi-hysterical about a hypothetical, dystopian future characterized by creepily surreal, teeming suburbs arranged just outside the figurative (and perhaps literal) walls of hollowed-out cities.
But leaving aside my literary extrapolation and pretensions to sci-fi screenplays, a more straightforward, immediate concern is simply that record low mortgage rates have inflated a new housing bubble.
The latest evidence of this came Thursday, in the form of another blowout existing home sales print. Contract closings surged 9.4% last month (21% on year), to an annualized 6.54 million pace. That’s the swiftest since May of 2006.
This insatiable demand pushed the median selling price up nearly 15% YoY to almost $312,000. Homes sat on the market for barely three weeks last month. That is a record low.
“Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season,” Lawrence Yun, NAR’s chief economist remarked. “I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home.”
More than 70% of listed properties sold in September were on the market for less than a month.
“It’s looking like 2003 redux, as existing home sales continue to surge thanks to urban exodus and low, low rates,” Bloomberg’s Cameron Crise wrote Thursday. “It would be ironic after years of low rates and financial repression in the aftermath of the GFC if we ended up back right where we started — with a housing bubble,” he added.
It would be ironic, wouldn’t it?
Meanwhile, rents in the world’s most expensive cities continue to plunge. In the (extremely unlikely) event you’re looking for an apartment in Manhattan and you enjoy being a goldfish, they’re basically giving away studios at this point.
Any takers? My guess is, they’ll wave your security deposit too.
One professor of urbanism at Princeton is optimistic — at least as it relates to the potential for lower prices to create what she called “a more equitable distribution in housing.” “We love cities, we love to congregate,” she told Bloomberg this week.
In addition to her teaching job, she’s also a landlord.
Love this: “It would be ironic after years of low rates and financial repression in the aftermath of the GFC if we ended up back right where we started – with a housing bubble.” That would seemingly have to be the end of this supercycle of the everything financial bubble here in the US. I can’t think of anything the Fed could do to stop it. So, they buy MBS, so what.
To keep this overheated market going a few more quarters, they’re going to have to drive rates lower.
No way rates are going up. Things are going to have to bust up and we’ll have to be in a new, monetary regime before they do. It’s coming, but no one wants that right now.
Keep the comments coming. Thanks
I concur, a valued commenter.
I think there’s a reasonable possibility that we’ll see a peak of residential real estate values, and a decades long stagnation/decline. Housing depreciates in Japan. They build it cheaply to last 30-40 years and then be torn down. Negative mortgage rates in places like Denmark are another way of saying owners must be compensated for buying into asset likely to depreciate. I don’t fully believe the demographic forecasts for the US. Who will have children in this depressionary environment? Will nationalism subside, and immigrants go from being persecuted to suddenly being welcomed with open arms?
If – and it’s a pretty big if – we come up with a viable, widely distributed Covid vaccine, effective therapies, and good mitigation systems (eg, HEPA filtration in buildings, UV light disinfection, continued mask wearing when appropriate as in Asia, etc.), we are going to see a party that will last 5-10 years, and young folks will move back to the cities in droves.
Young people and immigration is a completely different story……. take 3 years to play out. Or Cities become the big uglies. That would sure be an Empire in decline postcard from the USA.
“Rampant de-urbanization and permanent isolation are not generally seen as positive developments. Indeed, I’ve dedicated more than a few (thousand) words to waxing semi-hysterical about a hypothetical, dystopian future characterized by creepily surreal, teeming suburbs arranged just outside the figurative (and perhaps literal) walls of hollowed-out cities.”
Well, wasn’t that long the rub against southern cities like Atlanta, Houston, and Charlotte? “Everyone” commutes in and leaves at sundown. Leaving deserted streets except where poor people live. The lucky ones patronized venues located in pristine suburban malls. I recall that when Charlotte was chosen to host some sort of national basketball tournament, the city had to scramble to bring in pop-up restaurants and bars because of that.
Readers in Connecticut can point to a similar situation in Harford. It’s not a possible dystopian future — it’s the current reality.
We tried to purchase a home in San Diego and anything even remotely decent immediately turned into an all out bidding war. Then we began looking in northern Arizona and found that house hunting was almost as bad there.
We finally got one, but only because we were sitting in the car with the engine running, when one came up. We were the first to get there, ran through the house, and I made the owners an offer on the spot. There were already other vehicles circling. The whole process was crazy.
Welcome to 2020 (or is it Superman’s “Bizarro World”) where record unemployment = rising home prices. Where lock-downs, massive government stimulus and/or borrowing, and a potential wave of bankruptcies = a good time to take out a new mortgage! what could possibly go wrong? Question: where are all of those people selling their homes in the suburbs (presumably to those who are fleeing the cities) moving to now? Suburban rentals, moving in with relatives, or simply homelessness? Is this yet another example of the “Two Americas?” If so, then I would like to suggest that once again government aid is not going to where it is actually needed the most.
I can, in fact, answer one of your questions, as I’m a landlord and flipper in the northern ‘burbs of Dallas for my retirement “fun”. Many of the suburban folks are trading up or downsizing and generally staying put, while the influx of ex-urbanites is helping fuel the suburban market (which is, indeed, totally gonzo). However – I also see small-town markets in the boonies heating up. I’m now flipping and developing lots a couple hours east of Dallas in the Piney Woods of east Texas. Real estate is still priced like That 70’s Show out there and the customers are Dallas/Houston ex-suburbanites who can work in a vacation home, escape Covid, and potentially never go back. So at least some of the selling suburbanites are heading to small towns.
I do expect a rebound to the cities once the gloom lifts, but I doubt the bubble exists (at least, I doubt the “pop”). Folks don’t realize that in 2005, single-family housing starts were 1.7M. After the crash, construction never recovered. Not even close. From 2009 low of 445K, we managed to crawl back to 887K in 2019. Single-unit construction is only half-way back to pre-GFC levels – 16 years later! Ponder THAT construction deficit. And now urbanites who were renting bedrooms for $2.5K/mon want whole houses and yards for about the same price.
And the Piney Woods? Yeah, the ISP techs who showed up at my vacation house had a folksy drawl, but they set up my fiber connection and config’ed my router in about 6 minutes flat… I expect to see more suburban transplants. And I’m not so sure about renewing my uptown lease…
Your answer overlooks the “Two Americas” problem that I raised: I doubt the working class poor who have lost their jobs due to Covid-19 are re-locating to small towns where gainful employment would be potentially even harder to obtain. What does a housing bubble in the midst of the worst financial crisis since the Great Depression say about the bifurcation of our society economically? Yes, some will re-locate and buy beautiful new homes, others will make a killing on real estate, and far too many may become homeless.
Lower prices for rentals in the large cities and lower purchase prices will entice new entrants in several years. Covid basically pushed out folks that were considering a move anyway. They will be replaced in time by new folks. Not everyone wants to live in the suburbs or cities for that matter. Covid will get treatments and vaccines- will it be a year? Maybe or maybe not, but it won’t be 5.
“Indeed, I’ve dedicated more than a few (thousand) words to waxing semi-hysterical about a hypothetical, dystopian future characterized by creepily surreal, teeming suburbs arranged just outside the figurative (and perhaps literal) walls of hollowed-out cities.”
… ever venture to Metro Detroit?
Urbanization is paused, not dead.
I am not exactly sure what you are envisioning when you say “waxing semi-hysterical about a hypothetical, dystopian future characterized by creepily surreal teeming suburbs…”, but I am pretty sure that I am not the only one envisioning “The Stepford Wives”.
As usual, great writing.
Will there be another housing crisis? There will. To what degree. Not sure. But interest rates without honest price discovery have pulled so much futre demand forward that the industry is ripe with the propensity for malinvestment. And the present demographic trends could be an additional headwind. Relative to urbanization and speaking of demographics, retirees love the security of good hospitals close by.
A growing body of research has shown conclusively that as animals evolve, larger species are more efficient resource consumers than small animals. Also the ratios of size to efficiency produce a very smooth curve. Interestingly, it turns out the same relationship is true for cities. Larger cities are much more efficient per capita users of resources than smaller communities. Moreover, it also turns out that the ratios which describe increased efficiency in cities, as relates to size, are almost identical to those that describe animal efficiency. The most efficient city in the US is NY and the most efficient animals are whales. If this relationship continues to hold, urban areas will soon be attractive a resources become more scarce.
A powerful reminder of how misleading national data can be. The survey captures activity and (to state the obvious) excludes inactivity. At the present time, it therefore cannot attest to the challenges in urban housing markets, much like GDP data for the past few decades has failed to provide any insight into the lived experience of actual people.