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U.S. year-on-year housing prices rose 14.6 percent in April — the fastest pace in more than 30 years — and the economist who predicted the housing market crash of 2007 is predicting that the current booming housing-market bubble will end in a crash.
“Bubble trouble,” tweeted economist Nouriel Roubini, who has been nicknamed “Dr.Doom” for his bearish forecasts. And the U.S. is not alone, Roubini. “Housing bubbles also appearing in many other advanced economies and some emerging markets. The boom and bubble will be eventually followed by a bust and a crash.”
Roubini is a professor of economics and international business at New York University’s Stern School of Business and chief economist at Atlas Capital Team.
In the U.S., home prices have surged over the past year as covid-spooked Americans took advantage of record-low mortgage rates to buy houses away from crowded city centers. High demand and low supply helped drive up prices to record levels and a steep rise this year in lumber costs exacerbated the problem.
The S&P Case-Shiller national home prices index, which covers all nine U.S. census districts, rose 14.6 percent year on year in April after a 13.3 percent annual jump in March — “the highest reading in more than 30 years,” according to the report.
Home prices in U.S. metro areas including Dallas, Miami, New York and San Francisco, rose 1.6 percent in April compared to March and 14.9 percent year on year, according to the S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index, Financial Times reported. Phoenix, San Diego, and Seattle reported the highest increases.
“April’s performance was truly extraordinary,” said Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices.
There are some signs that the supply of housing inventory is growing, FT reported. The supply of new homes for sale rose by 15,000 in May to 330,000, up 5.8 percent from a year ago, the U.S. commerce department said. That represented a 5.1-month supply at the current sales pace, up from 3.6 months in January.
Roubini has said he believes the economic recovery from the pandemic will be “anemic” and dragged down by reduced supply, job losses and inflation. This time around, he’s predicting a decade of depression that he says will hurt ordinary workers the most. In other words, “an economic recovery that neglects the masses,” CCN reported.
“There’s going to be a painful process of deleveraging, both by the corporate sector and the housing sector. They have to be spending less, saving more, and doing less investment,” Roubini said during a June 23 interview on Bloomberg’s Invest Global virtual conference.
The U.S. cannot afford a “boom and bust cycle” in the housing market that would threaten financial stability, said Eric Rosengren, president of the Boston Federal Reserve, in a Financial Times report this week. Cash-only buyers are winning bidding contests in Boston, he said. Other Fed officials, including Dallas Fed president Robert Kaplan, want the central bank to re-evaluate its support of the housing market through $40-billion monthly purchases of agency mortgage-backed securities.
Not everyone agrees that the housing bubble will burst, or that there is a bubble. “It seems highly unlikely that home prices in the U.S. will decline anytime soon. In fact, most industry watchers and forecasters are predicting the exact opposite,” according to the Home Buying Institute, an educational resource that claims to be independent and unbiased.
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Home values in most U.S. cities are expected to continue climbing for the foreseeable future due to the lopsided supply and demand, HBI asserted. “During the last housing bubble, we had a surplus of homes being built. Today, we have the exact opposite. Housing market inventory in many U.S. cities have sunk to record low levels in 2021. This imbalance is unlikely to change anytime soon. This is the No. 1 reason why housing analysts expect prices to continue climbing for the foreseeable future.”
Roubini’s bubble warning set off a debate on Twitter. “Housing costs rising up similarly all around the world . Main reason of the price escalation is that , Population increasing faster than building rate. Therefore there is no bubble. If you can buy then buy earliest possible,” @ali59064587 tweeted.
“Wrong,” @AmirLein responded. “In Spain there are miles long empty houses that nobody can afford to buy .definitely a bubble”.
“The US housing market looks like Tulip Mania to me,” @440UrPp tweeted.
“With high demand (from demographic changes) and low supply (for various reasons) continuing well into the future, it’s hard to see what if anything could cause a bubble to burst,” @KnobbyTigerEgos said.
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