The concern about housing being in a bubble has dominated a lot of conversations over the past couple of years, especially as people referenced the 2005-07 period as a baseline. While the two periods are not alike (2005-07 saw significant oversupply, no-doc no-income loans, subprime/Alt-A loans and loose underwriting), we did see a similar run-up in prices. With the government response to the pandemic adding a massive dose of fiscal stimulus, in addition to the monetary response from the Fed, liquidity in the housing market became generous and we saw historically-low mortgage rates. Naturally, with “cheap money” it was easy to bid up prices on a limited number of homes for sale.

And as mortgage rates doubled this past year, we’ve also seen the correction in prices. As of January 2023, we’ve seen median list prices decline 11% across the country. That being said, current economic and market fundamentals do not point to a burst/crash. Employment remains solid, with most people who have a job seeing wage gains. We have 11 million open jobs and half as many unemployed people looking to fill them. Mortgage rates have been sliding from the 7%+ in October/November. In addition, there are still markets in the US where demand for housing remains robust.

Importantly, we still have a housing market which is undersupplied. By Realtor.com’s calculation [https://www.realtor.com/research/us-housing-supply-gap-nov-2022/], the gap between the number of new households which were formed in the last 10 years (population growth) and new homes constructed is above 5 million. With that shortage, as long as the economy remains resilient, given the number of millennials, and now also Gen Z in the 26-35 age group, I expect demand for housing to remain solid.

Yes, the record-low rates which fueled overheated prices are behind us, and we’re seeing that correction take place. At the same time, it would take a combination of deep recession with massive job losses plus major new construction inflows to inflict a steeper correction on home prices. Bottom line, I expect to see more divergence in pricing and market dynamics based on geography and location, meaning, some markets will see prices decline while others may still see growth this year. - George

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I hear several topics wrapped in the question, TXKAP... :) On a less bleak note, demographics play an important role in housing, but not the only dominant role. Cost of construction (materials, labor, fees, etc.), financing (interest rates), labor markets (wages and incomes) and importantly, land zoning, also play major roles in the availability of affordable homes. After all, when boomers came of age, the construction industry offered a NEW home for every budget, from low-cost Sears homes, which were boxed and trucked to the build site, to a large volume of master-planned suburban communities, and all the way to high-end custom homes. And those were in addition to the existing home supply.

However, in most municipalities, zoning regulations were redesigned in the 1970-1990s, which created artificial barriers and elevated the costs of development. Many of those zoning regulations remain on the books today, even though the US population has grown significantly since then.

On top of this, we overlay the impact of the 2008-09 housing bust, when a large number of local and regional construction firms left the industry. The net effect has been a significant underbuilding over the past decade and a half, just as the millennial generation came of home-buying age. With less supply and a lot more demand, not surprisingly, we ended up with much higher prices.

In brief, we could have more affordable housing today if we made a more concerted effort, at the local level, to adjust zoning and work with developers and construction companies to meet the level of population growth we’ve experienced. We are seeing movement in that direction, along with some technological innovation (e.g. 3D-printed homes). In fact, just the past week, a company managed to push concrete-printing to a second-story for a home in Houston.
Moreover, modular housing technology has also come a long way with some great products. But financing for modular/prefab homes remains stuck in past decades. We can do better on that end, as well.
I believe that we can still enjoy our boomer parents and grandparents AND build more affordable housing. - George

Research has shown that wealth, including housing wealth, has an impact on labor force participation decisions. In this recent data review from the Fed, they update previous research which suggested that 15% to 20% of the decline in labor force participation could have been caused by rising asset values (including for housing & financial assets). The latest data adjusts for falling real asset growth and finds that somewhere between 16% and 36% of the recent increase in labor force participation could be explained by these trends. So wealth has an impact, but it's not the only impact.

The Fed is focused on its dual mandate: price stability and full employment. And with the unemployment rate still near long-term lows and inflation well above target, price stability is the half of the mandate that has commanded more of the Fed's attention.
While wealth effects are important, it's also important to remember that if one spends housing wealth by using a mortgage to tap into equity, it has to be repaid.

-Danielle

Why do you have four separate questions instead of just merging then all into one?

Intelligent_Bat7377 - Tampa has seen a noticeable influx of new residents over the last few years, which has pushed demand for housing higher, along with prices. This trend only accelerated in the pandemic period. In the fourth quarter of 2022, over 45% of home shoppers looking to buy in the Tampa metro were from out-of-state.

In tandem with the surge in demand, construction has focused mostly in the higher price tiers, with a lot of new properties being priced above the median. This has also come against a backdrop of undersupply from the past decade. The net effect has been that prices and rents have increased. Median list prices in Tampa rose by double-digits from April 2021 until October 2022. Even last month, list prices were still 7% higher than last year.

While new construction is beneficial for the supply pipeline, and should help tame the pace of rent growth, the fact that most new homes carry higher prices will keep pressure on rents in the short term. - George

Rent control as a topic has a good bit of research literature focused on it. Based on real-life cases, restricting the amount of rent a landlord may collect tends to dis-incentivize capital improvements to a property, or even new construction, because the costs tend to increase with inflation, many times at a faster pace than rent growth. While rent control measures can stem the rapid rise in rents over a short time period (and thus offer relief to burdened tenants), over a longer time horizon, they tend to discourage development and lead to diminished supply in the market, which in turn, keeps market-rate rents going up. A more sustainable solution for affordable housing, especially given population growth, is new construction. - George

Trying to pinpoint when a bubble is happening in real time is notoriously difficult. It's usually only obvious in hindsight. That doesn't stop investment firms or researchers from trying. The Dallas Fed, for example, has a metric tracking exuberance in the housing market based on price-to-rent, price-to-income, and real house prices which has signaled exuberance in the housing market since 2020. But this metric identifies when buyers and sellers are exuberant and not necessarily when and by how much prices will come down when the exuberance is over.

The best indication of the trend for home prices going forward are fundamentals that drive supply and demand and an indicator of how in- or out-of-balance the current housing market is. Several indicators tell us that the 2022 housing market started off with a record imbalance of demand far-outstripping supply. As mortgage rates rose, we saw market-balance shift away from sellers and suppliers, toward buyers, but still, even as we start 2023 and the number of homes for sale is up more than 65% compared to a year ago, there are more than 40% fewer homes than was common at this time of year in the 2017-2019 pre-pandemic housing market.

Home buyers have more negotiating power and leeway than they've had over the past few years, but compared to most prior periods, the housing market still remains relatively under-supplied.

-Danielle

Household formation is an important long-term indicator of housing demand for both rental and for-sale housing. But household formation is also affected by affordability, because people make different choices based on what they can afford. There was strong demand for all types of housing in late 2020 and 2021. Many millennials were entering their prime first-time home-buying years, and a strong job market and remote work enabled people to seek more space. But in 2022, rising mortgage-interest rates and high rents have weighed on demand. More people are doubling up with roommates, and home prices and rents are now falling in some markets.

-Nicole

edit: added gift links

You're right about the variety of predictions. Ours are on the stronger end for 2023. The full 2023 housing forecast and economic forecast are linked, but I'll summarize some key takeaways.

1. We expect inflation to slow, but not return to its target which means that the Fed keeps rates higher for most of the year.

2. This keeps upward pressure on mortgage rates (though admittedly, we've seen more weakness in rates for 2023 than we initially expected).

3. Because mortgage rates and home prices remain relatively high, sales decline. Our expectation is that sales for 2023 will be down 14%, which would actually put them slightly above the pace we've seen in recent months.

4. Slowing home sales will help curtail price growth, but we expect to see home sellers pull back from the market in 2023, which will keep home prices from adjusting quickly, and we expect them to grow in 2023.

The 2023 housing market is not going to be as strong as we've seen over the past few years from either a sales or price growth perspective, but I do think it will surprise those expecting a crash.

-Danielle

I talked to a lot of economists last year about the 2023 market, and everyone agreed that the range of forecasts was unusually wide. One thing everyone agreed on is that there’s going to be significant regional variation. Unlike in 2021 and 2022, where basically every market in the U.S. showed strong price growth, economists expected some markets to slow far more than others this year. For the most part, the markets where prices rose the most during the recent boom are also expected to post the steepest price declines.

And remember, the housing market is in a much stronger position today than during the housing boom and bust of the early 2000s. In many markets, even a 20% home-price drop would not bring prices back to pre-pandemic levels, so many homeowners would still have equity.

-Nicole

edit: added gift links

The iBuying model is predicated on the assumption that a firm or a group of investors can find value in a given market, and through marginal investment (fixing what's broken or outdated) can extract that value by selling for a higher price. In that process, investors can and have leveraged cash as a negotiation tactic, offering less than comparable properties in exchange for speed and ease to buyers who either had a lot of equity and/or were in a hurry.
These assumptions work very well in an up-market, where the rising tide lifts all boats (houses). The real test for iBuyers is a market downturn, when properties which were acquired at a high price no longer command those lofty prices, and when operating costs (taxes, utilities, etc) start to pile up. As we've seen this past year in the case of several well-known companies that existed the iBuying model, a market downturn can wreak havoc on the best-designed models.
In answer to your question, yes, iBuying can impact a local market, especially if investors buy a large share of homes in a given geography. The activity can drive prices higher and make it challenging for individuals or families to get a foot in the door at a more affordable price.
I see equity investor participation (large funds with available cash) in housing to continue in the future, as long as return remain attractive. At the same time, I see a smaller number of strict iBuying transactions taking place. - George

Talk to real estate agents with a good reputation who are familiar with your location. A good agent will take time to come and take a look and give you some answers to your questions hoping you will list with them should you decide to sell.