No Housing Bubble

Exacerbated by a labor shortage and rapidly increasing cost of building materials, builders in new communities from Wellen Park to Lakewood Ranch are releasing lots in small numbers and requiring sealed bids from homebuyers without knowing what the final building cost will be. It pushes frustrated new homebuyers to turn to resales, which further depletes the resale housing supply, already at an all-time inventory low of 2 weeks.  It results in ever escalating prices and multiple bids over list price, be it a $250,000 or $3,000,000 home.  See tables below.

In Sarasota County, in just the past 7 days, 391 single family homes and condos sold/closed.  Median days on the market?  4.  The median sold price to list price ratio was 100%.  Breathtaking.  Since the first of this year, I have sold over a dozen homes, one of which sold at list price, all others over list and within 1 – 8 days. 

But a housing bubble?  I don’t see it.  At the beginning of COVID, the government instituted foreclosure forbearance programs for homeowners unable to make their mortgage payments due to layoffs and other causes accruing from the lockdown.   Nearly 5 million homeowners signed up.  Many housing bubble advocates predict a doomsday scenario with foreclosures flooding the market, increasing inventory, deflating prices.  However, BlackKnight, a leading mortgage analytics firm reports that as of this month, forbearance programs have fallen to 2.2 million homeowners.  As more jobs come back, more homeowners will get off the program.  Homeowners who may lose their home to foreclosure, their loss will be softened by equity appreciation realized over the past year.

Demand … you can’t argue demand.  Demographics … you can’t argue demographics.  Gen X is between 41-56 years old.  Millennials between 25 and 40 years old.  They represent the largest demographic group ever, bigger than Baby Boomers.  Housing is a necessity. The demand for housing will grow ever larger as the next 3-5 years sees continued demand from these 2 demographic groups for trade-up and first-time homes in our feeder markets up North, our desirable Gulf Coast, and from retirees relocating here.     

That does not mean prices are not overheated.  They are.  Prices are rising too fast.  That’s why I keep a daily eye on the yield of the 10-year Treasury, which traditionally (although not always) impacts mortgage rates at an approximate plus or minus 2% spread.  This morning it was at 1.635%, and Freddie Mac reported the average 30-year fixed rate mortgage climbed to 3%.  As inflation and/or concerns of inflation rise, I expect the 10-year yield to rise to about 2% and mortgage rates to about 4%; enough to taper, cool down the rate of appreciation, but not stop it.