Serious question today, with inflation going up how long before the housing bubble burst? I’m banking cash right now so I can start paying cash for our valued houses in a couple years.
How long before the Fed start increasing interest rates?
There's some debate as to how much is really a bubble and how much of this is just a macro inventory problem.
After the housing crash in 2008 builders were rightfully scared to build and invest and we simply didn't make enough housing for over a decade. Covid caused people to re-evaluate their situation and cash out equity and there wasn't the inventory to support it, creating a huge spike in pricing. That will get fixed but it will take time.
Add in the insane increases in lumber pricing (esp sheet goods) and new construction/remodel costs have skyrocketed increasing the value of existing homes. There are several causes of that:
1) Lumber mills shut down when Covid first hit because they predicted demand would fall through the floor (which it did at first)
2) When the surge hit, it took longer than expected to bring capacity up...that led to panic buying driving the price up more (and the availability down)
3) Understanding the macro situation isn't going away quickly, there is a ton of new capacity going in (mostly in the SE) over the next 24 months. This increased supply will ease commodity pricing. Expect dimensional lumber to get back to normal late Q3 and sheet goods in early 2022.
4) In many northern markets Canada owns a majority of the production. Right after the pipeline was cancelled they started taking more of that production domestically, further reducing supply. It's unclear if that was political or economic, but the potential future loss of oil export revenue apparently had some impact.
In this market we've seen a cooling off for several reasons:
1) People are tired of not finding anything - last month if you required a home inspection there was a high chance you wouldn't win the contract. That's insane.
2) Home sellers stopped trying (because they didn't have to), reducing the quality of inventory
3) Subsequently many are deciding to just wait it out
Not predicting but I think you'll see housing slowly get back to normal through early 2022, but the baseline will be raised until more new production can come online. That's probably a 2-3 year window. In other words, the "bubble" might not be as fake as it seems. Your concern about interest rates is fair though...as inflation hits the rate may go up and that could cause a swing in the other direction. But they are so low it's going to have to move alot if we really are as inventory constrained as it appears.
