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Expert says market ‘ready to explode’

Posted on by angelo
Expert says market ‘ready to explode’

The supply of new housing Prices in the southern US states have risen sharply, potentially creating a bubble in the housing market, a real estate analyst suggested on Monday.

Housing bubble in southern US to burst imminently, expert warns

Construction up due to pandemic-related demand

Home Builders Southern states have ramped up construction in response to increased demand for housing during the COVID-19 pandemic. Many Americans moved to the South in search of more affordable housing after remote work became widely possible due to stay-at-home orders aimed at slowing the spread of the virus. However, that trend is now slowing, leading to falling demand for houses.

During the pandemic, cities like Austin, Dallas, and Nashville saw an influx of new residents drawn to relatively low housing costs and the appeal of larger living spaces. This high demand prompted builders to rapidly ramp up new home construction to meet the growing demand. According to real estate market reports, this period saw a record number of building permits issued and homes completed at an unprecedented rate.

Potential real estate bubble

Despite the initial surge, market dynamics are changing. According to one analyst, the drop in demand has left many homes on the market, creating a potential bubble.

“A massive housing bubble has formed and is about to burst in the South. The number of new homes for sale in the South (FL, GA, TN, TX, etc.) has spiked to nearly 300,000,” Nick Gerli, CEO of Reventure Consulting, said in a post on X, formerly known as Twitter. “This is the highest level ever. It’s even higher than the peak of the previous bubble in August 2006, before the massive crash.”

Gerli’s analysis data shows that this inventory buildup is not just a temporary fluctuation, but a significant indicator of market imbalance. The rapid expansion of the Southern real estate market is now revealing vulnerabilities that could lead to sharp corrections if left unaddressed.

Impact of falling demand

Gerli also suggested that COVID-19-driven demand has led to a spike in prices, which are now falling as demand for housing wanes. The rush to acquire real estate during the pandemic has pushed prices to record highs, making it increasingly difficult for local buyers to secure homes.

“I know this sounds very pessimistic for real estate in the South. But at the end of the day, it’s pretty simple. Homebuilders and investors have been speculating wildly in this real estate market for the last 3-4 years. Prices have gone way beyond what people can afford, creating a bubble,” he said on X. “Now that bubble is bursting — slowly. And it could start bursting pretty quickly if a recession hits.”

The potential recession that Gerli mentioned could aggravate the market correction. If the economic situation deteriorates, potential buyers could delay their purchases, which would further reduce demand and put additional downward pressure on prices. This could lead to a faster and more pronounced market adjustment.

Market normalization

Some real estate economists say the market may be normalizing after the volatility seen during the COVID-19 pandemic, when cheap mortgage rates and lower prices in the South attracted buyers. The Southern housing market, once characterized by rapid growth and strong demand, is starting to stabilize as market forces rebalance.

“Our data clearly shows that markets in the South are the most normalized. In Austin and San Antonio, for example, there are more homes for sale today than there were before the pandemic,” Danielle Hale, chief economist at Realtor.com, told Newsweek. “So there is more availability in the South, and we’re seeing that impact prices.”

The median home price in Austin, for example, is down 3% from last year, she added. That price decline indicates the market is adjusting to reduced demand, more closely aligning home prices with what buyers are willing and able to pay.

Southern Market Resilience

The United States still needs to build enough housing, and the South has done a better job than other parts of the country of bringing new housing to the market, Hale noted. Southern states have been more proactive in addressing the housing shortage by stepping up their construction efforts.

“This neighborhood has also attracted a lot of households from other parts of the country because housing remains affordable,” she said. “I expect this neighborhood to continue to attract people and its relative affordability will continue to be a benefit.”

Hale added: “So I don’t think we’re going to see a crash, but it’s true that the inventory of homes for sale is less scarce in the South today than it has been in recent years.”

Market fairness and stability

Compared to the 2008 financial crisis, homeowners now have significant equity in their homes, including in some parts of the South. This equity acts as a buffer against potential market downturns, reducing the risk of widespread foreclosures.

“Historically, Florida, for example, has had a high proportion of homeowners who own their homes outright,” Hale said. “Nationally, home equity is much higher now, making it less likely that there will be the kind of price declines that led to the problems of the mid-2000s.”

This equity provides homeowners with greater financial stability and flexibility, allowing them to better weather market fluctuations. It also means that even if prices fall, many homeowners will not be in financial distress with their mortgage, reducing the risk of distressed sales and foreclosures.

Regional variations

Gerli acknowledged that other regions of the United States are experiencing less difficulty than the South. The Northeast and Midwest, for example, have not experienced the same level of speculative construction and price inflation.

“We’re not going to see a housing collapse in the Northeast and Midwest. Home construction is at very low levels there. As is speculative inventory activity,” he said on X. “Prices in those areas are also less overvalued. And inventory is much lower.”

He added: “It’s possible that a housing market correction will occur at some point in the Northeast and Midwest. But for now, those markets are holding up.”

More conservative construction practices and stable market conditions in these regions have protected them from the extreme swings seen in the South. While they are not experiencing the same rapid growth, they are also less likely to face severe corrections.

Summary: In summary, the housing market in the southern United States is at a critical juncture. Rapid growth driven by pandemic-related demand is now exposing potential vulnerabilities. While some experts suggest the market is normalizing, others warn of an imminent housing bubble burst. The region’s future will depend on whether demand stabilizes and whether economic conditions can support continued housing growth without significant corrections.

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