Until recently, not many people thought housing was in a bubble. But new data has Dallas Fed researchers noting “abnormal US housing market behavior,” “reasons for concern,” and calling housing prices “unhinged from fundamentals.”
One possible reason for price increases, the Fed blog said, is a sense of FOMO among buyers, who have been moving with a “buy now before things get worse” urgency. It’s a self-fulfilling cycle: prices are rising, so buyers are buying, so prices are rising.
The Fed bloggers also noted that we’re seeing an explosive appreciation in housing prices that’s driven primarily by the expectation that values will rise, which they term “exuberance.”
While words like “unhinged” and “exuberance” might sound like the makings of a great party, they also sound a little scary to those in the real estate business. Will this “bubble,” if we actually are in one, drift gently downward, or will it plummet to the pavement?
What we at MBANC are seeing is an equilibrium of opportunities: as homebuyers are stepping away, investors are stepping in. Coupled with a Covid-sparked boost in short-term rentals, the rental market is expected to skyrocket.
Realtors who are accustomed to dealing only with residential homebuyers might have to stretch their wings a bit, but if they can also make gains with investors, who are capturing an increasing share of the property market, they can surf the next wave rather than sinking.
Fed researchers recommend policy makers use the detection and intervention tools put in place in the early 2000s, with something akin to a “stitch in time” approach — gently tapping the brakes now, instead of slamming them on later and giving everyone on the bus a painful jolt.
The ride might be a bit bumpy, but not nearly as hair-raising as 2008. And for those sharp-eyed enough to see what’s coming next, they can pivot in that direction to stay on course.