The real estate world is in a bubble.
It’s no longer a market that needs to go through a cycle of supply and demand, but rather that the supply is rising so quickly that it will inevitably become oversupplied.
The question is: what does this mean for our country’s economic recovery?
It could have major implications for our economy.
According to the National Association of Realtors, the median price of a new home sold in June was $205,000, up $4,500 from a year earlier.
In July, the average price was $216,000.
With a current inventory of just 7.8 million homes, that means that we are only halfway through the first quarter of the year.
But even with this oversupply, demand for housing remains very high.
For example, last month, the New York Times reported that the average selling price for a new single-family home was $2.3 million, up 1.8 percent from a month earlier.
This month, that figure was $3.4 million, a 9.7 percent increase.
And that is only the top-end of the market.
At the bottom end of the spectrum, it’s hard to imagine a scenario where prices don’t rise even further.
The median price for the median-priced home in June in the S&P 500 index was $162,000; the average was $170,000 and the average of the five most expensive counties in the country was $172,000 (New Jersey, $184,000).
According the real estate website Zillow, the country’s median home price is $241,000 in San Francisco, which is a bit more than the median for the entire country.
This means that for the vast majority of the country, prices are likely to remain high in the years ahead.
Meanwhile, the number of new homes being built continues to fall, according to the Bureau of Labor Statistics.
As we head into the second half of the current year, the total number of homes being sold has fallen by nearly 4 million, according the National Realtor Association.
There’s little doubt that, for the most part, we are in a “bubble” in which new housing construction is still relatively sparse.
But what if the housing market does begin to soften?
What if demand begins to rebound?
One theory is that if housing starts were to begin to surge, there would be a boost in home sales.
So, the question then becomes, are we in a housing bubble?
The answer may not be clear cut, but it is clear that a “boom” is unlikely to last long.
If we are to have any hope of keeping our economy growing, we need to understand how this market will respond.
The short answer is that the market is not ready for the next boom.