Matthew Gardner's Housing + Economic Update - 5/24/21

Our economist Matthew Gardner just released a video to address questions about a possible housing bubble. It's a 30-minute video starting with a recent history on presidents taking steps to increase homeownership (which translated in part to relaxed underwriting guidelines and lower down payments), but if you jump in around 8:40, it gets more interesting (and a bit comical) as he begins describing how our current environment is so different from that of the early 2000s - from available mortgage products to percentage of sub-prime borrowers.

He also addresses our historically low inventory, noting that in recent years, homeowners have simply stayed in their homes longer, while the number of new households has increased dramatically - Matthew compares 2000-2006 with 2014-2020 in this graph:

Further, permit activity for new construction has also decreased significantly from both pre and post pandemic vs in the 2000s.

Overall, Matthew finds that current day homeowners' excellent credit and "significant equity put us in a very different place than we were in the 2000s"

And on recent appreciate rates: "The pace of price growth we've seen over the past year is clearly unsustainable and it must start to slow - if only to allow incomes to start catching up". He noted that in some markets, the pace of growth in list prices is showing tentative signs of this, which he says will likely ease the pace of growth in sales prices.

The bottom line is that he does not see a downturn in real estate unless banks greatly ease lending requirements again, something he does not feel is realistic.

If you have the time (and interest), it's a really thorough look at all that was in play then, and how things have shifted so dramatically in recent years.