The country’s housing bubble may be about to burst, leaving millions of homeowners with mortgages that far exceed the value of their property. That’s according to new data from the Census Department released last week.
In fact, the Federal Reserve calls the exuberance in home sales and prices “unhinged from fundamentals” and “abnormal … for the first time since the boom of the early 2000s.”
The findings include that the cost of a new home hit a record high in February of $511,000 caused by inflated prices over high demand. From Kansas City to Miami and Denver to Boston, prices have skyrocketed causing home prices at the time of sale to exceed their actual value.
In an episode of The Daily Wire’s “Morning Wire,” Cabot Phillips discussed the skyrocketing housing market.
Housing prices have spiked 25% over the past year, and since 2012, the cost of a new house has doubled, Phillips explained. “Cities with the biggest spikes were Phoenix, Miami, and Tampa, but overall, it was houses in southeastern states that saw the largest spike in 2021,” said Phillips.
When asked why prices were spiking, he pinned the reasons on inflation, which is currently at an 8% year-to-year rate, rising costs for lumber and fuel, and the COVID-19 pandemic. “During the pandemic, new construction projects were halted across the board, and that means the number of houses now up for sale is far lower than usual. It’s simple supply and demand,” he said. “And unfortunately on that front, it will likely take years for new home construction to once again meet demand.”
Another reason for the high demand, and consequently high prices of new houses is the shift to remote work during the pandemic. As people were allowed to work their high-paying jobs from home for companies in big cities like Los Angeles and New York, they were able to leave those cities and live in smaller, cheaper neighborhoods. Across the country, millions left big blue cities for low-tax red states. This set off bidding wars, Phillips explained.
The continued rising costs in the housing market have caused the Federal Reserve to warn the nation is in a housing bubble, something not seen since just before the market crash of 2008. Phillips said this means the Federal Reserve sees people overpaying for houses causing a “market exuberance.”
The 2008 bubble burst caused tens of millions of homeowners discovering that their mortgages far exceeded the value of thier homes. Most defaulted on their obligations causing the Obama administration to absorb hundreds of billions in bad debt and move to save the banking and mortgage industry.
There is some hope for the housing market to calm down. “Some Real Estate experts say that increasing mortgage rates should cool the market a bit,” Phillips commented. “Remember, mortgage rates were down around 2 percent during the pandemic, so a lot of people were simply able to afford houses that a few years earlier when rates were higher, would’ve been out of their price range.”
Other experts aren’t as optimistic for the near future, however. They believe that “until the supply of houses meets the overwhelming demand that we’re seeing right now, prices will continue to rise,” Phillips said.
Some economists have advised potential homebuyers to wait until the market settles, and purchase a home when it hits bottom. That could save a buyer up to 25% on the cost of a home.