With the price of the average American home jumping by nearly 35% since the start of the pandemic, there are a lot of people waiting anxiously for a bubble — or even the smallest of dips to get their way in with a down payment.
Early signs pointing to housing anxiety are abundant.
According to the latest report from Redfin, Google searches of "homes for sale" are down 15% in Boston, 14% in San Francisco and 13% in Los Angeles from the same time last year.
Tours of California homes for sale were down 21% from the first week of 2022 by March 31. The average price of a home in California is $758,360, according to Zillow.
Going by an average conventional loan at 3%-15%, buyers would need a down payment of $37,000 to afford financing the average American home, and a down payment of $76,000 for around 10% in California.
Researchers with the Dallas Fed also recently announced that they see evidence of a looming housing bubble as "U.S. house prices are again becoming unhinged from fundamentals."
With the number of U.S. cities in which the average home costs over $1 million tripling in the last year, first-time buyers in particularly are out of luck.
And they are having difficulty navigating both record-low inventory and competition from buyers who, in desperation, make higher and higher offers (to say nothing of the rise in all-cash offers.)
Is That Housing Bubble A Myth?
Immediately after the Fed announcement, many speculated whether a burst was imminent.
As investors rush to scoop up homes and prices, many predict a "burst" similar to the 2006/2007 housing bubble in which prices dip significantly in order to realign with demand.
"Housing affordability keeps hitting new lows in the US... first time buyers have been priced out of the market," investment community Wall Street Silver posted on its Twitter (TWTR) account. "Investors are not likely to stay around when they realize the music had stopped."
But that, however, doesn't mean that homebuyers should expect a return to affordability in any way that will make buying a house more affordable for the average person.
Anne K. Thompson, a real estate price analyst at the Massachusetts Institute of Technology, predicts home prices to fall somewhere between 10% to 15% in the coming year.
In cities like Phoenix, where the average price of a home soared by nearly 33% between January 2021 and 2022, such a drop would not even get back to what we saw pre-pandemic.
It also still puts the average price of a home out of reach for large pockets of the population.
"[Prior to the 2006-2007 bubble], there was both subprime lending and this general atmosphere of unrealistic bullishness and belief that prices can never go down," Thompson told TheStreet.
"In 2021, buyers have seen prices escalate like crazy and they're cautious. That would would tamper any kind of potential bubble collapse."
In a recent paper written with Yale University's Robert J. Shiller, Thompson found major differences between the types of buyers looking at homes in 2021 and 15 years ago.
More are working white-collar jobs, already have money saved and are generally wealthier and younger.
"The people that were buying were all higher-income professional and technical workers," Thompson said.
"[Many] weren't paying student loans back and they had the money saved to do it," she said. "That may be part of what caused the escalation in prices in 2021."
So How Do I Lock In That House?
Nicole Rueth, a mortgage broker and senior vice president of Fairway Independent Mortgage Corp. in Colorado, also does not predict a major drop in housing prices.
She said that is particularly true for primary homes in the mid- and lower range of a given market.
Any kind of bubble would mostly affect secondary and vacation properties as homebuilding is not keeping up with a dearth in inventory, to keep up with everyone who wants to buy a home.
In February, it was at at 870,000 units or a 1.7-month supply at the current sales price, according to data from the National Association of Realtors.
"Real estate may not go up every single year but it always goes up," Rueth told TheStreet.
This type of analysis may be discouraging for buyers who feel that any opportunity in the market will be offset by a lack of inventory and lower but still sky-high prices.
Rueth says that the key to securing the first home is not to try to time the market but to save money any way possible.
Then, when one feels they have enough for a down payment in a particular market, try to make an offer on a house that will (most likely) amass equity.
"Having a conversation about being as strategic and as intentional as possible is key to getting that client under contract," Rueth said. "[...] I'm telling all my clients to lock in that home price today and then, when the recession comes, they can refinance it."
