Market-Pundit-Extraordinaire – Barry Habib – was on The National Real Estate Post again today – screaming that the media is wrong! (again).
I love quoting Habib b/c his predictions prove accurate far more often than those of any other pundit that I follow (and I follow many).
NO BUBBLE HERE – ELDERLY PEOPLE STAYING PUT
Habib’s primary point was that we are not in another housing bubble, contrary to what media outlets are reporting.
The housing market is so hot right now b/c of very strong demographic demand (about which I have blogged numerous times) and record-low inventory levels.
NEW TWIST THIS TIME
One of the reasons, however, that inventory levels are even lower than expected is b/c elderly people have opted, en masse, to stay put instead of selling b/c of the COVID crisis.
This of course significantly reduces inventory levels and exacerbates the demand/supply disequilibrium.
LOW RATES & INFLATION
Another COVID-related factor that is making housing a great bet is low interest rates.
Rates dropped almost a full percent in response to the COVID crisis, immediately making housing much more affordable.
This has the added effect of encouraging buyers to simply bid that much more aggressively, and the entire market seems to have adjusted upward in response.
And the final reason COVID has made housing a great bet is the risk of inflation (something Habib also addresses in the video I link to above) brought on by all the COVID-related stimulus.
Inflation invariably pushes up the prices of hard assets like housing, as I mention often, and it also makes it much easier to pay off fixed-rate debt (with cheaper post-inflation dollars).
THREE REASONS WHY COVID MADE HOUSING A BETTER BET
To summarize – here are the 3 reasons why the COVID crisis made housing a much better bet:
- The elderly opted to stay put, decreasing inventory levels
- Lower rates resulting from COVID pushed up prices; and
- Inflation risks as a result of COVID stimulus will likely push up prices too
Despite all these rosy predictions, there are still concerns.
One concern is what will happen when all of the stimulus (unemployment insurance and direct transfers of all kinds) runs out.
This could result in a recession that is strong enough to weaken housing, irrespective of other conditions. And, if that happens while inflation sets in, we could see a repeat of the 1970s.
BUT – interestingly, when 1970s inflation got really bad, housing came to the rescue for many Americans as an excellent inflation hedge.
So, I repeat: “Ain’t no bubble here!” 😊
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