The staggering rise of U.S. home prices is forcing thousands of aspiring buyers into grueling, often risky bidding wars, raising questions about whether the torrid housing market could be in a bubble.
For nearly a year, the combination of low mortgage rates, a flood federal stimulus, lockdowns and teleworking — all sparked by the coronavirus pandemic — has fueled a rapid increase in demand for houses.
At the same time, COVID-19 exacerbated an already severe housing shortfall by causing major delays in new home construction and kept some potential sellers on the sidelines because they were afraid to let strangers tour their homes during a pandemic.
The median home price in April rose 20 percent — to $347,500 — compared with a year ago, and the average home spent just 20 days on the market before selling, according to data released Friday to real estate listing website Redfin.
And last month was not a pandemic anomaly.
Home prices rose 12 percent year over year in February, the fastest rate since 1996, according to the most recent reading from the closely watched S&P CoreLogic Case-Shiller home price index.
“We really sort of exacerbated this imbalance where demand was really strong but supply was unbelievably constrained,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association.
“You get into this year of record low levels of inventory, and that really is what’s spurring the very rapid home price growth,” he added.
Buyers with savings or equity in their current homes have helped keep up the pressure. Offers well above asking price are commonplace, and those unable to outbid competitors have upped the ante by waiving inspection requirements and restructuring offers with better immediate incentives for sellers.
Experts say there’s no clear end in sight to the homebuying frenzy, but they don’t see the same red flags that preceded the collapse of the mid-2000s housing bubble.
Though mortgage rates are low, lending standards have tightened considerably since the 2007-09 recession. The 2010 Dodd-Frank Wall Street reform law imposed much stricter home loan requirements to avoid another foreclosure crisis, and banks have also been wary of lending to all but the safest buyers because of pandemic-related uncertainty.
“A lot of the people who are buying today ... are among the most creditworthy in the history of mortgage lending,” said Reggie Edwards, an economist at Redfin.
“They have the highest levels of savings, and they're taking out loans that have the most equity off the bat because they're putting so much cash upfront. I don't think we have any concerns about if people can afford the homes that they're buying right now, especially compared to 2006, 2007.”
Edwards added that unlike the current market, where demand for homes far exceeds supply, the foreclosure crisis was fueled in part by lenders pushing families to buy up an oversupply of homes they could not afford, made more expensive by buyers interested only in speculative house flipping.
Federal watchdogs have also expressed confidence that the housing market will not inflate to dangerous levels akin to 2007.
Federal Reserve Chairman Jerome Powell told reporters Wednesday that while the sharp rise in housing prices is not an “unalloyed good,” the Fed hasn’t picked up signs of financial instability or growing risks.
Powell, however, voiced concerns with how many potential first-time buyers could miss their chance to make a crucial investment after a crisis that drastically inflated wealth inequality.
“If you're an entry-level housing buyer, this is a problem,” Powell said.
Julio Lopez, a 27-year-old data center technician from Pasco, Wash., knows that too well.
Lopez said he and his wife, a county elections administrator, have spent two months looking to buy a home and even longer saving up. After being locked down in a two-bedroom apartment, he said they wanted to upgrade to a house big enough for their 7-month-old daughter, an eventual second child and his mother-in-law, whom they support financially.
“Even if it was a house that would just barely be sufficient at this point,” Lopez said, “it would make more sense to start building up equity and maybe sell the house in five years.”
“It's proven to be really difficult,” he said.
After making unsuccessful offers on three homes, the Lopezes on Thursday put an offer on a renovated 1944 three bedroom, two bathroom house listed that day for $295,000.
Lopez said they toured the house and offered $325,000 to buy it — the same day it hit the market — after being told another potential buyer made an offer well above asking price that would expire the next day.
They found out Friday that their offer wasn’t good enough, missing out on a home that would sell after just two days on the market for 65 percent above what the owners initially paid in September 2020, according to Zillow.
“I can't imagine how people who make less money than us even dream of doing it. Me and my wife are fortunate enough to have really solid jobs,” Lopez said.
“With our income combined, it's just very disheartening that even with that, it's just not enough to buy a house right now,” he said.
Industry analysts and affordable housing advocates see some promise in President Biden’s $2.3 trillion infrastructure proposal, which includes $213 billion in tax credits, federal spending and grants meant to produce 2 million affordable houses and apartments.
Housing construction has also picked up in recent months, and the gradual loosening of coronavirus restrictions may push buyers to stay in urban centers that saw mini exoduses earlier in the pandemic.
But as long as intense demand continues to strain a housing supply shortage, an increasing number of Americans could be kept out of homeownership with years of potential implications. The situation is particularly troubling for Black and Hispanic Americans, who had been locked out of the housing market for decades because of racial discrimination and have far less family wealth because of it than whites.
“All their down payment saving becomes almost irrelevant and pointless with fast-rising home prices,” said Lawrence Yun, chief economist for the National Association of Realtors.