Local Market Monitor, a National REIA preferred vendor, recently released their monthly National Economic Outlook where they share their thoughts on developments taking place in the U.S. economy.
National Economic Outlook
By Ingo WinzerSeptember, 2021
The latest data on home prices show an incredible surge in almost all markets across the country. This can’t be explained through economic growth or population growth or income growth, because there hasn’t been any. It seems to be a pandemic phenomenon unrelated to ordinary economic measurement, and therefore we don’t know how it will develop.
There isn’t an enormous surge of demand. Last year 5.5 million homes were sold, this year it may be almost 6 million, but that’s well within the range of normal.
All sorts of pandemic-related reasons are possible. People buying homes to escape apartments, people buying second homes to escape the city, people accumulating down-payments with money they couldn’t spend, people buying investment properties because interest rates are low, people spending more time at on-line real estate sites.
I think it most likely that tight supply is the cause. During a pandemic, and with their finances insecure, not as many people are willing to sell their home and move. The few homes available start a bidding war, higher prices tempt more sellers, and all of a sudden the upward momentum of prices takes over.
The problem with all these scenarios, including mine, is that we have no hard evidence to back them up. So we don’t know what will happen next. I think the surge in prices will fade fairly soon – but I don’t know when. Booms have a life of their own.
The big question for investors and bankers is whether the rise in home values will be permanent. Should banks make more home equity loans? Should investors make speculative purchases? When you know you don’t know what’s going on, the best advice is to not do it.
In the meantime, the recovery is stuck, with jobs overall still down 3 percent from the pre-covid level. The good news is that jobs in business services, finance, construction and retail ARE back to that level. Once covid stops being a political issue jobs will return faster in manufacturing, healthcare, restaurants and local government (teachers).
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