Even before the lockdown eased, white-collar professionals who saw their jobs as far away from their apartment were in places like Seattle and New York City to buy homes in markets like Austin, Boise and Las Vegas. This surge in homebuyer activity, of course, has seen home prices skyrocket in those markets. In Las Vegas alone, a pandemic housing boom has sent home prices up 49%.
This boom is now over.
Across the country, housing markets are cooling off. Home sales are declining. Multiple performances dry up. Homebuilders are holding back and offering buyer incentives. But every aspect of the lull is most acute in markets like Boise and Austin. Simply put, pandemic boomtowns are hardest hit by the pandemic housing stagnation.
“You can make a strong case that the last 10% of home price hikes in a lot of the housing markets have been completely ambitious and illogical, and that is going to come really fast… That’s exactly what we’re all seeing now,” says Rick Palacios Jr, Head of Research at John’s Burns Real Estate Consulting luck.
Palacios says a looming home price correction will be most visible in frigid markets like Boise and Las Vegas. In fact, he says Boise could be the first major market to report a year-over-year decline in home prices. This could happen even before the end of 2022.
Arguably, the stock is the best indicator of how quickly the market is turning. If the active stock goes up significantly, it increases the chances of the market being exposed to the home price correction. For this luck Realtor.com has pulled inventory data for Austin, Boise, and Las Vegas. We wanted to see if they were slowly heading towards a correction.
In July 2020, luck Austin called the nation’s No. 1 housing market to invest in real estate during the pandemic. Our theory was that Austin was about to boom. We were right.
Amid the pandemic, Austin has seen a flood of new residents. This includes individuals like comedian Joe Rogan, Keith Rabois, and Tesla CEO Elon Musk, while companies like Tesla and Oracle have also moved into town. It all culminated in a historic housing boom.
Of course, high mortgage rates in 2022 upended the scenario. In July, Austin had a stock of 7,794 homes — compared to 3,063 homes offered during the same month in 2021. On a year-over-year basis, that’s a 154% jump.
While homebuilders across the country have brought back incentives to help attract buyers, many Austin homebuilders have already resorted to lowering home prices. If the market continues to slow, existing homes may also see price cuts soon.
Nationally, US stockpiles in July were 44% less Where he was in July 2019. This is not the case in Boise. In July, Boise stock was 141% above July 2021 levels, 34% above July 2019 levels.
The rapid rise in inventory explains why there is no shortage of national research firms predicting that home prices are about to fall in Boise. This includes John Burns Real Estate Consulting and Moody’s Analytics. one reason? There is an abundance of new construction in Boise that will soon hit the market. If no buyers are found, these homes can put downward pressure on home prices in Boise.
“It was a vision [Boise] The builders step back across the board. Unlike in 2008, not many were caught by surprise this time. They have more money. They’re making concessions and moving inventory, says Mac Wrigley, chief operating officer of Boise-based Sekady Capital.
Wrigley, who until June was COO of Boise homebuilder, still hopes that local builders can offload much of that inventory before it becomes a problem.
“If the market can slow down the new licenses, and accommodate the backlog of completions now expiring into the spring, there is optimism that the market will return to normal,” Wrigley says. “We are still in short supply, but we also still have the affordability issue for local buyers. “.
Back in the early 2000s, housing speculators piled into the American housing market. These investors, who were mostly home fins, targeted fast-growing Sunbelt cities like Las Vegas. That speculation eventually worked against Las Vegas once the housing bubble popped up in 2008. See, while the housing cycle was “rolling,” these investors were the first to run for the exit. This inventory buildup, of course, only leads to more downward pressure on the market.
Fast forward to today, and Las Vegas is once again at the heart of the cold housing market: Year-over-year, stock in Las Vegas is up 83%. Not only is Las Vegas slowing down fast, it’s slowing down at historical speed. In fact, the slowdown in 2022 is faster than the slowdown experienced by most saturated markets in the run-up to the 2008 crash.
But don’t pencil in yet another Las Vegas-style accident in 2008. At least that’s according to Moody’s analysis. The company expects home prices in Las Vegas to fall 4% between the fourth quarter of 2022 and the fourth quarter of 2024. While some might classify that as a housing correction, a crash isn’t hard to come by.
Let’s be clear: Not all US housing markets are changing as fast as Boise or Las Vegas. While mortgage rates reached equally high across the country, the housing epidemic did not.
Look no further than Virginia Beach. On an annual basis, inventory in Virginia Beach was down 7%. This is hardly a quick correction.
Why are the housing markets in Austin, Boise, and Las Vegas being hit hard by the housing slowdown? This is likely a result of the separate fundamental economic fundamentals.
The pandemic housing boom has pushed home prices in markets like Austin and Boise far beyond what local incomes would historically support. According to Moody’s analysis, Boyce and Austin are “overrated” at 72% and 61%, respectively. Meanwhile, Virginia Beach is “overrated” at only 19%.
Simply overvaluing the underlying economic fundamentals does not guarantee a home price correction. but it does not matter. Historically, when the housing cycle “turns around”, it is usually the “overvaluable” housing markets that are most at risk of a home price correction. Stock jumps in markets like Las Vegas suggest this may be true once again.
“In some markets, home prices have gone up more than 40% in just two years. At some point, affordability became an issue. Wages haven’t kept pace with the rising overall cost of living, and there is a cap on higher monthly mortgage payments,” says David Phelps, founder Freedom Founders, where he trains people on how to build wealth through passive real estate investments, says David Phelps, even low interest rates.
“Generally speaking, those markets that have reported higher levels of price increases will be those that show greater price contraction.”
Do you want to stay updated on the US housing market? Follow me on Twitter at Tweet embed.
Sign up for Wealth Features Email list so you don’t miss our biggest features, exclusive interviews and investigations.