Home Prices Soar to New Record, But 2 Factors May Trigger a Crash
May’s housing numbers are in, and they’re a doozy, with median home prices rocketing to a whopping $380,000 — the highest on record.
Realtor.com also reported that there have been 44 straight weeks of double-digit price growth and that homes remained on the market for an average of only 39 days.
CNN reported that year-over-year price gains have lasted 111 straight months. The last time housing prices dropped was back in 2012.
And according to real estate broker Redfin, more than half of homes sold for above list price in May — the first time that has ever happened.
Some Regions See Even Larger Increases
As the nationwide median home price continues to rise, certain cities are showing even more sizable increases.
The median price for homes in Las Vegas in May 2020 was $329,000. It now stands at $390,000.
Home prices in Phoenix rose from $384,000 to $450,000, and those in Riverside-San Bernardino in California went from $428,000 to $520,000. Tampa jumped from $285,000 to $335,000, while Atlanta increased to $390,000 from last year’s $334,000.
Austin saw a massive 32 percent increase in home prices, going from $377,000 all the way up to $499,000.
Housing Prices Skyrocket in 2021
Source: National Association of REALTORS® pic.twitter.com/YLWKQ1CGh0
— Eric Nanneman (@enanneman) June 23, 2021
Troubling Inventory Numbers
Home inventory — the number of homes available for sale — keeps shrinking, which is the key driver of the red-hot market.
May saw only about half a million homes listed for sale nationwide, less than half of last year’s inventory.
This anemic number has resulted in bidding wars over the few homes coming on the market, with 54 percent selling above their list price, compared to 26 percent last year.
Many observers are growing concerned.
Construction has picked up as more workers rejoin the labor force and the prices of materials drop. Lumber prices, for example, which peaked at almost $1,700 per thousand board feet last month, plummeted to $879 on Wednesday.
More houses means more supply, which under normal economic conditions would apply a gentle brake on prices.
But today’s housing market is far from normal.
Mortgage analyst Black Knight counted 2.5 million mortgages that are currently delinquent. Historically, as homeowners fell behind on their payments, they were foreclosed upon and their houses placed on the market.
But these homeowners are now protected by the federal foreclosure moratorium, which was extended by President Joe Biden in February and has created a logjam by preventing banks from seizing homes.
The moratorium is set to expire on June 30.
Is a Crash on the Horizon?
Increased housing construction combined with foreclosed houses coming on the market once the moratorium is lifted will certainly result in a rise in housing inventories and put downward pressure on prices.
And depending on how fast banks move, foreclosures could flood the market all at once, with a resulting crash in housing prices all but guaranteed.
It might be best to remain on the sidelines for the next 12 months.
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