If you recall from last week’s blog post, Real Estate Market Update for May 2021, we looked at the fundamentals of the current real estate market and explained how home prices were being driven by the strong imbalance between supply and demand. Regardless, the overheated nature of the current market has caused many to question whether we are in a housing bubble. It’s only natural as the last time home prices appreciated like they are currently was in 2005-2007, right before everything came crashing down. So is that what we are setting ourselves up for now?

To better answer that question, this week I share what four main financial institutions- J.P. Morgan, Merrill Lynch, Goldman Sachs, and Morgan Stanley have to say about the current housing market and what they are expecting to see going forward.

How Much Has Your Home Value Changed in the Past Year? CLICK HERE to Find Out Instantly

One of the discussion points raised in last week’s blog post was how skewed year-over-year numbers were currently. It’s very difficult to compare how home sales, new listings, and pending sales have changed compared to last year when everything was shut down at this time last year. The same is true for other measurements concerning the overall health of the economy, especially related to things like inflation, which showed a large jump in the latest numbers.

The “base effects” that CNBC is referring to here are the base numbers from last year that many of the comparisons are being made against. Chairman Powell from the Federal Reserve also commented that he believes the jump in inflation is “transitionary” rather than a trend. Increasing demand as states begin to fully reopen is creating problems across the supply chain as industries are trying to get back into full production. We are seeing this with lumber, food, airline travel, semi-conductors, lumber, pool chemicals, etc. As the supply chain gets fully restocked again it is believed the jump in consumer prices we have recently seen will settle back down.

Home Prices

It’s important to point out that the jump in home prices we have been experiencing here in Frisco and Prosper isn’t limited to just Frisco, Prosper, and North Texas. This is being experienced across the country. The National Association of Realtors (NAR) 2021 Q1 Home Price Report showed that 99% of all metro areas saw year-over-year price appreciation with 89% of metro areas seeing double-digit price gains.

When recently asked, none of the four major US financial institutions believe the current housing market is in a bubble.

J.P. Morgan believes home prices will continue rising into next year;

Merrill Lynch expects the current housing market expansion to be unusually long and strong;

Goldman Sachs noted the housing market had strong demographic tailwinds before the pandemic. Another way of saying the Millennial generation is reaching prime home-buying age;

Morgan Stanley points out that simply supply and demand imbalance is the root cause of the home price appreciation we are seeing today;

Regardless of what’s causing home prices to appreciate, we all know that home prices cannot continue to rise at the current pace as eventually too many people will end up being priced out of the market, which we are already starting to see at the entry level. Last week I mentioned that I fully expected the pace of appreciation to level off as interest rates and supply both increase. Vishwanath Tirupattur, a strategist with Morgan Stanley, echoes that belief;

Bottom Line

Home Buyers -if you are waiting for home prices to fall before jumping into the market it appears as though you might end up having to wait much longer than planned. As home prices and interest rates continue to rise you will find yourself being able to afford less house next year than you can this year. Although market conditions are tough, I would suggest you stay the course, even if it means buying something less than you had planned so at least you are in the market and able to take advantage of equity gains over the next 12 to 24 months.

Home Sellers - the market is definitely in your favor right now, but should you sell? The answer honestly depends. If you are planning on selling your home in order to purchase a larger, more expensive, home then you will be better off trying to do that sooner than later as the difference in price between your current home and your next home will only grow greater as prices increase.
If you are planning on selling your current home and downsizing into a smaller, less expensive, home then you can afford to wait and continue taking advantage of the equity gains the current market is giving you.

If you need help putting together the plan that’s right for you, or want to discuss your different options, please Schedule a Call with me and I’d be happy to discuss that with you in more detail.