Is the housing bubble about to burst? It's a good question. It's Jon from Financial MD, welcome to today's didactic minute.
We've all been asking this question and I know a lot of you are coming out of residency or fellowship where you just want to buy a house and you're wondering if you need to rent or buy. You'd love to buy because everybody wants to have their own house and their own space, although there are some pros to renting as well, but in today's market, is this the right time to buy? Now I know two years ago, we kind of understood what was going on. People were moving out of the cities into the rural areas and the suburbs. The pandemic was still going on and nobody was really selling at that time. So the supply was very, very low. But we all thought at this point two years later that those things should level out and prices would be back to normal – interest rates are another conversation entirely – but what we are seeing here is a classic example of supply and demand. We've got supplies at all-time lows. So if you go back even 10 years, you'll see in 2013 that the existing home sale supply was up in the two-and-a-half to three million range, which was pretty good. It was easier to find houses at that time and prices were good. It came down to a little more manageable level, as we thought it would. The recession had been tapering off for a while and things were getting normal and the economy was growing. Then things start to slow down. The economy hits and slows it down even more. And so, we have now seen that in 2022 during the winter, there were only 800,000 existing home sales compared to 2.5 million. And we really haven't seen much recovery. A little bit, but we had this huge supply and that's the other half of the equation...this huge demand when we have a couple of things: people wanting to move out of the cities into the suburbs and buy homes, and one of the largest transitions of people into young adulthood, early to mid-30s; we have this millennial generation coming around, finally wanting to buy a house and move out of their parent's basement. And so you have huge demand with low supply and we're not seeing that shift quickly enough. And, of course, throw in the difficulty of building a house and the cost of that and new home sales just aren't happening either.
So when will this end? I don't know. Is it time to buy or rent? That's a one-on-one conversation. If you want to ask that, you can put it in the comments or we can talk offline. You know how to get a hold of us. But stay tuned. We're going to be tracking this as much as we can because this applies to personal finances every day.
So, you know how to reach us. Like this video. Subscribe to it. You'll catch this every week. Or make sure you're checking out The Financial MD Show – that's our biweekly podcast – and subscribe to that. So, we'll see you next time.