The unlikely strength of the housing market during a pandemic has been no secret. And yet the report provoked responses along the lines of "unsustainable" and "bubble" because there seems to be no slowing down. A bubble, however, is driven by a surge in asset prices that is fueled by irrational behavior and disconnected from fundamentals. By that measure, what is happening in housing today is the opposite of a bubble and should help drive the economy for many quarters, if not years.
With the widespread damage from the subprime mortgage fiasco a little more than a decade ago still a fresh memory, it's understandable that many are warning against the potential for excesses in housing today. It's common to hear reports of bidding wars and houses being snapped up sight unseen within hours of coming up for sale. On average, properties remained on the market for a record low 18 days in March, according to the NAR.
Unlike the period heading into the last housing crisis, the issue today is that there just aren't enough homes to go around. The NAR says there is just 2.1 months of supply, or available homes for sale, essentially a record low and down from 9.6 months heading into 2008. Builders can't put up houses fast enough; their supply also stands at a record low, right around 3.6 months, compared with 9.6 months at the end of 2007.
And it's not as if buyers are stretching their finances to get into a home despite the rapidly rising prices. An NAR measure of affordability has been remarkably stable, hanging far closer to the highs set in 2012 and 2013 than the recent lows in 2006...
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