520: Are We Entering a New Housing Bubble?

SHOW NOTES FOR EPISODE 520: ARE WE ENTERING A NEW HOUSING BUBBLE?

The staggering rise of U.S. home prices is forcing thousands of aspiring buyers into grueling, often risky bidding wars, raising questions about whether the torrid housing market could be in a bubble. In today’s podcast, Bill examines key economic indicators and industry leaders’ statements that many suggest a bubble is indeed on the horizon.

Tip of the Week – Beware of Rental Scams

• Markets across the U.S. have a major need for additional rental units in order to house all the people who need affordable places to live.
• Lack of inventory, coupled with the COVID-19 pandemic has put a strain on the housing market and many renters are falling prey to scammers.
• Donna Boyce was looking for a new place to live and thought she’d found a house in Memphis for $500 per month on Facebook Marketplace.
• “When you saw a house for $500, what were you thinking?” asked the Investigators.
• “I had done hit jackpot,” said Boyce. “I felt I had been blessed.”
• Boyce contacted the person on Facebook who told her she could see the house the following day.
• “It had nice hardwood, clean shiny floors. I was just overwhelmed with it,” she said.
• Boyce was sold even though the “owner” said he couldn’t meet in person.
• “It was due to COVID the reason why we weren’t meeting in person,” said Boyce.
• Boyce received a lease agreement and immediately transferred first month’s rent and a security deposit: $1,100 total. But she didn’t send it to the person who identified as the owner. She sent it to a woman.
• “Sending my money through the phone like that and I’ve never met you, I had a funny feeling,” said Boyce.
• She was supposed to meet at the house the next day where the owner would have her keys.
• “So, that morning came. I woke up and I’m excited. I’m excited to go get my key. So, I call and his number was disconnected,” Boyce explained.
• The listing on Facebook had disappeared and Boyce was out all that money.
• There are nearly 50,000 low-income renters in Memphis, but fewer than 20,000 affordable and available rental units, according to the National Low Income Housing Coalition.
• “There were a lot of people displaced during COVID-19,” said Nancy Crawford Butcher with the Mid-South Better Business Bureau. “We know that people are looking for affordable housing.”
• According to Butcher, the Mid-South BBB has received six rental scam reports with a loss of more than $1,800 so far this year. However, Butcher said many more scams go unreported.
• “How common are housing rental scams right now?” asked the Investigators.
• “They’re very common. People are posting pictures of houses they don’t own. It’s always such a great deal that you have to put the deposit down right away. You don’t want to lose this great property and they want the money quickly,” she said.
• Each report can be found in the BBB’s Scam Tracker tool, which allows consumers to search by region or scam type to learn what scammers are trying to pull in their area.
• One of those scams in the online tool shows a fake homeowner wanted a deposit the day he sent a renter to three different addresses because she “couldn’t get in the first two” houses.
• This would-be renter didn’t transfer any money.
• Butcher says finding a home is emotional, which makes the search rife with scams.
• “You’re buying into seeing your family living in that home and it becomes personal to you. It’s an emotional issue and the scammers know that,” she said.
• Meanwhile, Boyce tried to dispute the money transfer with her bank but was unsuccessful.
• “I think I cried for a whole week. I just cried,” said Boyce.
• To avoid rental scams, the BBB says do not send money to anyone you haven’t met in person.
• Try to find the owner of the property you’re looking at by typing the address into the property assessor’s real property search tool.
• Be suspicious if you cannot get into the property or if the property is listed well below market value.

Resource:

https://www.wmcactionnews5.com/2021/05/03/investigators-rental-scams-rampant-hot-housing-market/

Are We Entering a New Housing Bubble?

The staggering rise of U.S. home prices is forcing thousands of aspiring buyers into grueling, often risky bidding wars, raising questions about whether the torrid housing market could be in a bubble.

For nearly a year, the combination of low mortgage rates, a flood federal stimulus, lockdowns and teleworking — all sparked by the coronavirus pandemic — has fueled a rapid increase in demand for houses.

At the same time, COVID-19 exacerbated an already severe housing shortfall by causing major delays in new home construction and kept some potential sellers on the sidelines because they were afraid to let strangers tour their homes during a pandemic.

The median home price in April rose 20 percent — to $347,500 — compared with a year ago, and the average home spent just 20 days on the market before selling, according to data released Friday to real estate listing website Redfin.

And last month was not a pandemic anomaly.

Home prices rose 12 percent year over year in February, the fastest rate since 1996, according to the most recent reading from the closely watched S&P CoreLogic Case-Shiller home price index.

According to Mike Fratantoni, chief economist for the Mortgage Bankers Association, “We really sort of exacerbated this imbalance where demand was really strong but supply was unbelievably constrained,”

“You get into this year of record low levels of inventory, and that really is what’s spurring the very rapid home price growth.”

Buyers with savings or equity in their current homes have helped keep up the pressure. Offers well above asking price are commonplace, and those unable to outbid competitors have upped the ante by waiving inspection requirements and restructuring offers with better immediate incentives for sellers.

Experts say there’s no clear end in sight to the homebuying frenzy, but they don’t see the same red flags that preceded the collapse of the mid-2000s housing bubble.

Though mortgage rates are low, lending standards have tightened considerably since the 2007-09 recession. The 2010 Dodd-Frank Wall Street reform law imposed much stricter home loan requirements to avoid another foreclosure crisis, and banks have also been wary of lending to all but the safest buyers because of pandemic-related uncertainty.

“A lot of the people who are buying today … are among the most creditworthy in the history of mortgage lending,” said Reggie Edwards, an economist at Redfin.

“They have the highest levels of savings, and they’re taking out loans that have the most equity off the bat because they’re putting so much cash upfront. I don’t think we have any concerns about if people can afford the homes that they’re buying right now, especially compared to 2006, 2007.”

Edwards added that unlike the current market, where demand for homes far exceeds supply, the foreclosure crisis was fueled in part by lenders pushing families to buy up an oversupply of homes they could not afford, made more expensive by buyers interested only in speculative house flipping.

Federal watchdogs have also expressed confidence that the housing market will not inflate to dangerous levels akin to 2007.

Federal Reserve Chairman Jerome Powell told reporters Wednesday that while the sharp rise in housing prices is not an “unalloyed good,” the Fed hasn’t picked up signs of financial instability or growing risks.

Powell, however, voiced concerns with how many potential first-time buyers could miss their chance to make a crucial investment after a crisis that drastically inflated wealth inequality.

“If you’re an entry-level housing buyer, this is a problem,” Powell said.

Julio Lopez, a 27-year-old data center technician from Pasco, Wash., knows that too well.

Lopez said he and his wife, a county elections administrator, have spent two months looking to buy a home and even longer saving up. After being locked down in a two-bedroom apartment, he said they wanted to upgrade to a house big enough for their 7-month-old daughter, an eventual second child and his mother-in-law, whom they support financially.

“Even if it was a house that would just barely be sufficient at this point,” Lopez said, “it would make more sense to start building up equity and maybe sell the house in five years.”

“It’s proven to be really difficult,” he said.

After making unsuccessful offers on three homes, the Lopezes on Thursday put an offer on a renovated 1944 three bedroom, two bathroom house listed that day for $295,000.

Lopez said they toured the house and offered $325,000 to buy it — the same day it hit the market — after being told another potential buyer made an offer well above asking price that would expire the next day.

They found out Friday that their offer wasn’t good enough, missing out on a home that would sell after just two days on the market for 65 percent above what the owners initially paid in September 2020, according to Zillow.

“I can’t imagine how people who make less money than us even dream of doing it. Me and my wife are fortunate enough to have really solid jobs,” Lopez said.

“With our income combined, it’s just very disheartening that even with that, it’s just not enough to buy a house right now,” he said.

Some industry analysts and affordable housing advocates see some promise in President Biden’s $2.3 trillion infrastructure proposal, which includes $213 billion in tax credits, federal spending and grants meant to produce 2 million affordable houses and apartments.  However, others fear it may make things worse.

Housing construction has also picked up in recent months, and the gradual loosening of coronavirus restrictions may push buyers to stay in urban centers that saw mini exoduses earlier in the pandemic.

“All their down payment saving becomes almost irrelevant and pointless with fast-rising home prices,” said Lawrence Yun, chief economist for the National Association of Realtors.

“If we have more supply, it gives a better chance for millennials [and] minority households to become homeowners, so we need to ensure that,” he said.

Reference:

https://thehill.com/policy/finance/housing/551276-is-the-us-headed-toward-a-new-housing-bubble

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