A recent firsttuesday poll asked readers when they believed today’s sales price bubble in real estate would burst. A significant 51% of readers believe the price bubble will pop a year from now, in the latter half of 2022.
The remaining respondents were more divided in their estimates:
- 22% assert there is no bubble;
- 15% believe the bubble will pop much sooner, near the end of 2021; and
- 13% believe the bubble will pop much later, sometime during 2023.
Some historical context is helpful. In a 2018 firsttuesday poll, readers were asked whether California was in the midst of a speculator-driven price bubble. 62% of respondents answered in the affirmative. In comparison, the 2021 poll indicates 79% of readers, as a whole, believe we are in a sales price bubble.
Bubbles form when the valuation of real estate increases unsustainably compared to other economic markers. For example, as of July 2021, the statewide average prices for:
- low-tier prices are 21% higher than a year earlier;
- mid-tier prices are 22% higher; and
- high-tier prices are 24% higher.
In contrast to these rapid price jumps, California is still missing 1.3 million jobs following the 2020 recession. Jobless renters and homeowners are unable to save or make housing payments, thus undercutting the foundations of today’s housing market.
With the agreement of such a bubble existing, the focus of the subject is just a matter of when the pop will inevitably occur.
Related article:
The coming decline for home prices
The continuing impacts of the 2020 recession and pandemic have brought about a volatile housing market. The discomfort of the unknown is unsettling, but looking to the past for guidance brings some clarity.
The patterns that occurred in the housing market during the 2020 recession can be contrasted against the Great Recession. During 2020-2021, we have seen:
- rising home prices;
- restricted inventory; and
- low mortgage interest rates.
The prior recession operated under an entirely different set of facts, with prices falling rapidly and inventory swelling. Thus, as we watch the slow recovery from the aftermath of the pandemic and recession, we will find the pop to be muted, and certainly not as catastrophic as the crash that followed the Millennium Boom.
Following the recent end of the eviction and foreclosure moratoriums, evictions and forced sales are returning, aiding in slowly digging us out of the inventory shortage. The recovery room today is much more reliable than the one from the Great Recession. There is still a lot of healing to do in terms of job recovery, home inventory, residential construction, and financial conditions.
firsttuesday anticipates a recovery to begin consistently around 2024-2025. Perhaps there will be no resounding pop per say, rather a diluted, slow leak. Readers estimate the pop will occur in the second half of 2022 — firsttueday expects home sales volume and prices to begin to level and decline heading into 2022.
