Was The Hot Housing Market Really An Illusion?
We heard for most of the past decade how hot the housing market was. After the housing collapse of 15 years ago, we saw a major bull run. We saw historic low interest rates on mortgages which helped to fuel the fire.
Or did it?
Here is a chart of home ownership in the United States over the past 30 years.
https://www.statista.com/statistics/184902/homeownership-rate-in-the-us-since-2003/
We see that it peaked around 2005 and dropped for the next decade. We see the nadir was hit in 2016 and things moved up from there.
So who was buying all the homes?
It is not easy to pinpoint but we do know a couple of variables that entered the picture.
The first is the Airbnb investors. Many bought homes on speculation with the intention of renting them out short-term. Of course, now that the country is shut down, those same people are looking to unload those properties.
Another factor is the fact that the Chinese government started to try to crack down on the wealthy in its country. This caused a mass exodus of funds, much of which ended up in single family homes in the United States. With the market entering troubled waters, these investments could take a hit.
Rental units are a viable part of the real estate market. This is a fact we cannot discount. However, when we look at the ownership numbers, we can see how fragile the market really was. Couple this with the fact that many individuals are at risk of default. We already saw more than 4 million people enter forbearance meaning they are skipping mortgage payments. This number is likely to keep growing.
If we see a downturn in the numbers on the chart, we will see a peak in home ownership that is severely lower than the previous high.
While we have yet to see much in the way of real estate numbers since the coronavirus hit but it is likely they will be bad. Housing tends to run a couple months behind in the reporting. There is a lag since it is a rather slow process to buy and sell.
Investors are often the first ones who are ready to jump ship. When we add this to the people already in forbearance, we see a situation that is not very pretty.
Traditionally, one of the values of real estate was that it was a rather stable market. Investors were people who got involved as landlords as opposed to contract flippers or speculators. This is no longer the case.
Here is the second instance where the run up in housing was fueled, in many instances, by speculation. This time, I am sure a great deal of it was the Airbnb, which is just a new twist on an old idea.
Either way, the debt load these people took on is unsustainable. A few bad reports will likely cause some panic which would lead to prices collapsing.
The hot real estate market of the last decade might not have been as hot as they made it out to be.
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Posted Using LeoFinance
