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Your City’s Housing Boom Could Go Bust

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The three most important things about your home’s value are still location, location, location.

While Americans worry that the gains from the pandemic-induced real estate boom will be wiped out by skyrocketing interest rates, they can take comfort in the fact that nationwide home price declines are extremely rare. , depending on where you live, you may have reason to be concerned. Local housing price crashes are more common than national ones and often hurt local economies. With prices so high in so many places, the time may be ripe for many real estate markets to rout.

The combination of pandemic-driven housing demand and ultra-low mortgage rates has driven home prices to skyrocket. Interest rates started to rise this year, but prices continued to rise. As of June, the S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas nationwide, is 45% higher than February 2020.

Economists have long said that renting and investing in the stock market is a better investment than owning a home, and that could be especially true in 2022. The WSJ’s Dion Rabouin said: is explained.Photo illustration: Elizabeth Smerov

Even if mortgage rates don’t rise, higher house prices will affect people’s ability to buy a home. Higher interest rates have priced in more potential buyers. Home prices in July were even lower than at the height of the 2006 housing bubble, according to National Association of Realtors measurements based on mortgage rates, median household income, and median existing home sales prices. increase.constructed Atlanta Federal Reserve Bank Actionbased on CoreLogic house price figures, and adding tax and insurance costs to the calculation, July prices are lower than 2006.

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The average interest rate for a 30-year fixed mortgage is Hit 6.29% This week, it rose from its July average of 5.54% to its highest level since October 2008.

Affordability tensions are casting a dark cloud over the housing market.On Wednesday, the National Association of Realtors reported seasonally adjusted sales of existing homes 7 consecutive months of decline Unadjusted median selling prices for homes were up 7.7% year-over-year, compared with 9.5% in July. Still, we might not expect a big nationwide decline in house prices, like the one that caused the Case-Shiller index to drop 27% from its peak in July 2006 to its low in February 2012.

Easy financing for subprime borrowers that fueled the bubble was no longer a factor in the rally of the pandemic, and the mortgage derivative products that sparked the 2008 financial crisis are no longer prevalent. Moreover, while investment buyers have played a role in pushing prices higher, speculation appears to play a lesser role than rising demand and low supply of homes for sale. In August, he had 1.3 million existing homes on the market, compared to his 3.8 million in August 2006.

Finally, house prices are trending downward.Unless the situation calls for it, many homeowners simply can’t sell if their demands are not met. Of course, inflation can reduce the real value of homes, compiled data According to Yale University’s Robert Shiller, a Nobel Prize-winning economist who co-constructed the Case-Shiller index with the late Karl Case, U.S. house prices (not adjusted for inflation) have risen sharply nationally since the Great Depression. Housing bust fell.

However, falling home prices in the region have become a more regular feature of the economy. For example, during the drilling recession of the 1980s, home prices fell in oil-producing states such as Texas and Oklahoma. Prices in the Houston area fell 23% from 1982 to 1988, according to Federal Housing Finance Agency indicators.Massachusetts MiracleIt helped elect Governor Michael Dukakis as the Democratic nominee for president in 1988.

Given how much prices have risen in some places, and how affordable housing has become as a result, a regional decline, especially as the Federal Reserve rate hikes weigh on the economy. We should not underestimate the possibility that the continuation of the As of July, the three-month moving average of median home prices was above Austin, Texas, according to CoreLogic figures used by the Atlanta Fed. The region is up 62% from February 2020, Phoenix is ​​up 66%, and Tampa is up 67%. Florida, for example.

People’s ability to buy homes in such areas is severely restricted. For example, in the Austin area, the median house price moving average was $497,623 in his July measurement. Median monthly household income in the area. Before the pandemic, the Atlanta Fed considered Austin housing “affordable.” It’s now more affordable than the chronically expensive Boston-area housing.

This could be Austin, Tampa, or boise, Idaho, Nashville, Tennessee, or any of the many places where house prices have skyrocketed since the pandemic began are destined for significant declines. But they have risks, and they also pose risks to their economies. A housing boom can have ripple effects. For example, while people spend more on household goods, demand for construction workers and other housing workers increases, pushing up wages. Bust unlocks these benefits.

case’s Research on the Boston Boom In the 1980s, Mr. Shiller became interested in the housing bubble. When Massachusetts plunged into a deep recession, the unemployment rate dropped from 3.1% at the end of 1987 to 9.1% at the end of 1991.case tied it to boston booms and bustswrote that it “extremely amplified the economic fortunes and misfortunes of the Commonwealth and the region.”

All real estate is local. So could a recession.

write destination Justin Rahart [email protected]

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