Real Estate Predictions 2021: Are We in Another Housing Bubble?

by | Jun 4, 2021 | Blog

Waiting for housing prices to fall? Don’t hold your breath.

It’s no secret that home prices have risen nationwide. Real estate agents and home buyers nationwide are dealing with extremely low inventory. It’s common for listings to receive multiple offers – and bidding wars are not unheard of right now given the extremely high competition.

The housing market is so hot nationwide that it’s prompted some people to make speculative comparisons to 2008 – but there are some very important differences between 2008’s financial crisis and 2021’s high home prices.

In this post I’ll explain a few factors that I see driving high home prices in 2021 – and I’ll explain what’s different from 2008. I’ll also share my prediction for whether home prices will remain high throughout 2021.

  

Construction materials are expensive (and sometimes unavailable)

 

The costs of essential building commodities like paint, appliances, metal, and other commodities have increased drastically. Lumber, for example, has increased in price by 400%. 

Lumber prices do fluctuate somewhat over the course of any given year, but the current lumber shortages and runaway price increases on construction materials are dramatic.

Compounding the problem, shortages in building materials cause construction delays for some home builders – which means that holding costs for builders also increase, and that cost ultimately gets passed on to the home buyer.

According to our development Project Manager Jessica, one of our wood suppliers expects the lumber shortage to last for at least the entirety of 2021…and likely into the early months of 2022.

 

Strippers (and many other freelancers) can’t get loans

 

Right now, only the most qualified buyers can get loans.

Prior to the subprime mortgage crisis that began in 2007, banking regulations were much less restrictive. During that housing bubble, it was possible for strippers to purchase six or seven homes with adjustable rate mortgages.  

However, increasingly risky behavior from lenders ultimately led to far more stringent banking regulations. 

In the wake of that previous financial crisis, many would argue that loans have actually become a little too difficult to get. Self-employed people and business owners especially have to jump through a lot of hoops in order to get a loan and buy property – which makes 2021 a far cry from the risky lending practices that were happening in 2008.

 

New housing hasn’t kept up with demand

For a decade now, builders simply haven’t built enough homes to meet buyer demand. This  housing underproduction is stark, especially considering population growth.

Looking at previous decades, building about 25M homes per decade is the norm. But in the past 10 years – and this is prior to construction material shortages that arose in 2020 – only about 5M homes were built… just 25% of normal housing production in the US. 

For comparison: 5 million homes were built during the 1930s, when the US population was only about 123 million.

So what’s causing this underproduction of housing?

Actually, this underproduction can partly be traced back to 2008, when many small- and medium-sized builders were wiped out. Those builders who survived the crisis often had trouble getting loans due to the stringent loan requirements that I talked about earlier in this post.

In short: Not enough housing was built from 2010-2020. Tens of millions of new homes aren’t  going to spring up overnight, especially given the commodity shortages that I discussed above.

 

The 2021 real estate market outlook

The housing market is hot – and it’s unlikely to cool down anytime soon. 

  • Buyer demand is high 
  • Inventory is low
  • Construction materials are expensive and scarce
  • Banking regulations are stringent

In other words, if you were hoping to wait until prices come down, you might be waiting for a long time.

Dan Lesniak has sold billions of dollars’ worth of real estate, developed over 500 homes, and written multiple best-selling books. He is a speaker, real estate coach, six-time Ironman, father of four, and husband to Keri Shull.

📱Text Dan your toughest questions about real estate, business, and investing at (703) 215-1684 or click here: https://my.community.com/danlesniak

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“I never grew up thinking I would have a real estate career. It was not something I planned. It actually was born out of what I thought at the time was failure…”

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