Federal Reserve warns of potential housing bubble as ‘prices are again becoming unhinged’

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The price of a home in the United States has swelled over 25 percent in the last year, prompting the Federal Reserve to warn that prices are starting to show signs of being “unhinged from fundamentals.”

“There is growing concern that U.S. house prices are again becoming unhinged from fundamentals,” researchers wrote in a blog post for the Federal Reserve Bank of Dallas.

“Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s,” they noted. “Reasons for concern are clear in certain economic indicators—the price-to-rent ratio, in particular, and the price-to-income ratio—which show signs that 2021 house prices appear increasingly out of step with fundamentals.”

The United States Census Bureau released a report on March 23 which indicated that while the median home sales price was $407,000, the average sales price was an astounding $511,000. Just twelve months prior, the average was only $407,500.

“Cities with the biggest spikes were Phoenix, Miami, and Tampa, but overall, it was houses in southeastern states that saw the largest spike in 2021,” managing editor at the Daily Wire Cabot Phillips explained in Thursday’s episode of “Morning Wire.”

Speaking on the precise reason he believes there has been such a spike in home prices this year, he pegged rampant inflation and the increased cost of fuel and building supplies as big underlying factors for the increase.

“During the pandemic, new construction projects were halted across the board, and that means the number of houses now up for sale is far lower than usual. It’s simple supply and demand,” Phillips explained. “And unfortunately on that front, it will likely take years for new home construction to once again meet demand.”

Phillips also noted that pandemic restrictions changed the economics in small cities as the cities saw people with high-paying jobs infiltrating smaller towns with big wads of cash to spend on housing.

“Many people left big cities like L.A. and New York but kept their high-paying jobs. Which in many smaller cities, set off bidding wars for the houses that were available,” Phillips said.

Even renters haven’t escaped the increased cost of housing as Phillips noted that rental rates have increased around 17 percent compared to this time last year.

Phillips noted that some believe an increase in mortgage rates may help put the brakes on the price boom.

“Some Real Estate experts say that increasing mortgage rates should cool the market a bit,” Phillips said. “Remember, mortgage rates were down around 2 percent during the pandemic, so a lot of people were simply able to afford houses that a few years earlier when rates were higher, would’ve been out of their price range.”

But not everyone is that optimistic and Phillips noted they think it’s more probable that “until the supply of houses meets the overwhelming demand that we’re seeing right now, prices will continue to rise.”

Others aren’t painting such a rosy picture of the future either and are instead predicting that the predicted housing bubble is going to pop “catastrophically.”

***Warning: Language***

Others weren’t concerned that institutional buyers would get hosed in the predicted downturn of the market.


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