Even in the face of a pandemic, elevated unemployment, and a general nationwide recession, home prices have surged, researchers recently reported.
“Prices are defying logic, expectations, and even belief, as they shoot up to record highs amid an unprecedented health and economic crisis,” reported Realtor.com, which went on to weigh the questions: “Are some markets getting too hot? Could a significant correction be around the corner?”
Markets in possible peril include “some high-priced California and less expensive Rust Belt, Midwestern, and Southern markets,” Realtor.com reported.
Prices have shot up by more than 20% in the past year in some of these regions. Experts who spoke with Realtor.com discussed the sustainability of this “seemingly irrational home price exuberance” and speculated that “bubble territory” could be looming. They also speculated that a Great Recession-type bust is unlikely.
Nationally, the median home list price rose 10.1% year over year in the week ending August 15, according to the most recent Realtor.com figures.
This year's high prices are driven by many buyers competing for a very limited inventory. More demand than supply means higher prices.
“Some markets are overvalued," said Javier Vivas, Realtor.com's Director of Economic Research. "Growth of prices in a recession is pointing in that direction. Some markets are seeing increased risks of price corrections."
More likely than a bubble pop is the chance that home prices would come back to reality, Vivas said.
“Typically, market corrections happen fairly quickly, within two or three months, as priced-out buyers make a beeline for the sidelines," Vivas said. “This year, record-low mortgage interest rates are muddying the picture.”
Rates at an unprecedented sub 3% are driving more buyers into the market and allowing them to stretch higher on what they're willing to pay. Lower rates mean lower monthly mortgage payments. That's allowing sellers to ask—and receive—more for their properties.
Those unable to buy in the spring because of the pandemic—along with buyers desperate for larger, single-family homes with big backyards after sheltering in place for months—are adding to the rising demand.
However, worries about the pandemic have led to a record-low number of homes for sale, as sellers decided to wait out the health crisis. Meanwhile, many builders were forced to pause projects in some parts of the country. That has led competing buyers to bid up prices hoping to secure a property.
The 2020 home price ramp-up is happening in some of the nation's most expensive and inexpensive markets alike.
“In the inexpensive markets, you have a ton of space for prices to grow. You can see them overheat and absorb that overheating better," says Vivas. That's unlike the already high-priced coastal areas.
"The outlook for them is a faster and broader correction, [with] slight declines in home prices.”
Realtor.com explained why America likely will not see the housing-bubble pop it saw in 2008.
Until more properties come online, the low-inventory-high-demand dynamic is unlikely to change. The Great Recession had the opposite problem: There were many more homes available than qualified buyers.
“In the aftermath of the housing bust, it's become harder for buyers without good jobs and strong credit to score mortgages. This weeds out riskier borrowers. And unlike the last go-around, when builders were erecting residences at what seemed like a break-neck pace, the under-building of the last few years has exacerbated the housing shortage,” according to Realtor.com.
“Even if the economy doesn't improve by next year and a vast swath of Americans remain unemployed, we are not likely to see the flood of foreclosures that characterized the housing crash, partly because government protections could be extended.”
The report goes on to evaluate the potential future of over overvalued markets as well as potential increases in cheaper markets.