Opinion: The demand for housing is on the verge of weakening. here’s why
Although it is overvalued, there is no indication that the housing market is in a bubble. (A bubble develops when there is speculation or when buyers buy homes for the sole purpose of selling quickly for a profit, which is not the case today.) But stress lines start to creep in. appear and the housing market is about to calm down. .
Constraint lines start to appear
Demand for housing will therefore weaken. House prices will adjust. Not that there will be widespread declines in house prices; it still seems like a small threat. This would require a significant increase in defaults and distressed sales, which is unlikely given the improving labor market and generally tight mortgage underwriting standards since the financial crisis.
In addition, the real estate market is not in a bubble. Unlike the real estate bubble we experienced before the financial crisis, house flips, defined as an arm’s length sale within one year of the previous sale, remain low, according to my analysis. And much of the turnaround that’s happening is due to investors buying older homes, especially in older cities in the Northeast and Midwest, renovating them, and then selling them quickly.
But the house price gains will certainly subside, a lot. There may even be modest price drops in the hottest high-end sectors of the housing market, in second homes and vacation homes, and in small and medium-sized towns that have seen the greatest influx of work from anywhere. households. And while owning is generally better financially than renting, homeowners shouldn’t expect the outsized returns they’ve enjoyed over the past decade to be repeated in the next. .