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Call it a perfect storm of conditions to keep home prices on a steady upswing as buyers clamor after too few homes. I had the opportunity to talk to HousingWire\\u2019s lead analyst Logan Mohtashami about the unusual situation we\\u2019re seeing, and whether all those scary headlines about a housing bubble are true.

The housing market has been breaking all sorts of records. It\\u2019s never been so hot. Asking prices have hit an all-time high. Selling prices have hit an all-time high. The share of homes selling over list price is also breaking records. I noticed a crazy headline the other day. It said: The East Bay real estate market is so hot, houses are selling for more than $1M over asking price.\\u201d That\\u2019s a jaw dropper for sure!

That headline appeared in the SFGate in reference to the San Francisco East Bay. One realtor said in the article that it\\u2019s not that surprising when they get an offer like that. Josh Dickinson says: \\u201cWhen my clients see a house for $1.9 million they\\u2019re almost conditioned to think it\\u2019ll go over $3 million in Piedmont or North Berkeley.\\u201d

Buyers are so desperate to land a home, many are sweetening the deal with things other than money. According to SFGate, one buyer offered free one-week stays at an Airbnb in Tuscany for the next ten years, but still lost the bidding war. Stock options and airline miles are also popular.

That\\u2019s undeniable evidence of housing market demand, but it isn\\u2019t the whole story, and it doesn\\u2019t provide an answer to the housing bubble question. In 2007, housing prices hit bubble territory against a backdrop of poor underwriting and buyers who couldn\\u2019t afford their homes. When the Fed raised short-term rates, adjustable rate mortgage payments skyrocketed, home prices sank, and many borrowers defaulted. Logan says it\\u2019s a whole different story today and one that is very far from a bubble.

He says that today the housing story is all about demographics, low mortgage rates, and low inventory. Despite previous beliefs that millennials would never get married and settle down, they are now trying to do just that. Logan says we\\u2019re at the start of a unique period when millennials who are 27 to 33 years old are ready to buy. Since many of them are highly paid employees in the tech industry, higher-priced homes and bidding wars may not be a big problem. And if they want to get away from the high-priced homes, it\\u2019s very likely that they can do their work remotely, from a smaller metro where homes are less expensive.

Mortgage rates are still very close to an all-time low. They hit rock bottom because of the pandemic, and are still under 3% right now. So even though home prices are advancing skyward, mortgage rates are very attractive. As Logan pointed out, they are lower than they should be. In 2018, they were up near 5%. In 2019, they dropped a bit, but it was COVID-19 that brought them to a record-setting low. Freddie Mac shows the low point in December of last year with the 30-year fixed-rate mortgage at 2.68%.

And the inventory problem is only getting worse, making the homes that are available that much more desirable. Logan says from 1985 to 2007, the average number of years was five, before families would move. Now, it\\u2019s more like 10 years. So there\\u2019s less turnover of homes to replenish the existing home inventory. Covid made that situation even worse, as potential sellers decided to stay put. And many of those who have vacation homes are now living in them instead of renting them out. Plus, builders haven\\u2019t been able to make up for the deficit.

Logan says the pandemic didn\\u2019t create this scenario, but it did contribute to it. He says Covid brought mortgages lower than they would have been and that home prices accelerated beyond the normal trend. And there\\u2019s little chance of a foreclosure crisis. That\\u2019s another scary headline that is unlikely to happen. Logan says it\\u2019s not going to happen because we just don\\u2019t have the kind of bad credit that we had before the housing crisis.

He says the \\u201chousing bubble boys\\u201d and the \\u201cforbearance crash brothers\\u201d are both wrong because right now, housing is the most outperforming sector in the world. To sum it up, Logan describes the current market as a huge millennial buyer group who are well paid and ready to buy their first homes. And they are especially incentivized by the low mortgage rates. Since there is a shortage of homes, this kind of demand will continue to drive prices higher and feed into the kind of bidding wars that can add hundreds of thousands of dollars onto the asking price. But he says, the market is not on the verge of crashing.

In a blog that Logan just posted on HousingWire, he says: \\u201cThe key to the U.S. getting back on track economically is for its citizens to freely walk the earth again without the existential threat of COVID-19.\\u201d He expects that to happen before the end of August.

If you want to immerse yourself in a very lively conversation about the housing market, check out Logan\\u2019s interview on my other podcast, The Real Wealth Show.

You\\u2019ll find a link on the podcast player page for this episode at NewsForInvestors.com

Links:

https://www.sfgate.com/realestate/article/2021-05-east-bay-real-estate-overbids-hot-market-16151227.php

https://www.realwealthnetwork.com/real-wealth-show-podcast/?wchannelid=nnhnv5t81j&wmediaid=f41ejs3akp

https://www.housingwire.com/articles/weve-got-rising-home-prices-but-no-housing-crash-in-sight/