Houses are getting more expensive. There's a fix to that?

More than 17% of the homes in the U.S. are selling above list price.  Would-be homeowners are furious as they lose bidding wars. Many are looking back in time and thinking "Bubble".  Of course it doesn't help for the "Media" to promote Bubbles!

Prices rise and fall for all assets for a number of reasons.  So what makes something a "Bubble"?  The likely reason is so many people have put so much attention in the price of homes, and their home in particular, that it didn't take to much for prices to rise; especially, when there is a low inventory of homes for sale.

A sharp rise in an asset's price is not necessarily a "Bubble".  The fear comes from the fact it is in our homes, which are usually the last thing we think of.  The last thing, at least, until the newspapers need something to publish. 

Millennials represent 37% of the buyer's today.  They are the driving force of our buying marketplace.  They passed the "Baby Boom" Generation in 2020.  It is only natural they move into the home buying market.  They are the class of buyers with wealth that can bid up if they want something.  They are also the generation that will adjust their needs as they evaluate the market place.

The fact is the market cannot accommodate their interest and supply their needs.  Freddie Mac found in 2018 the shortage of buying to selling was 2.5 million homes, in 2020 it was 3.8 million homes.  Get the picture?  Newly built homes dropped form 40% in 1980 to 7% in 2019.  The Pandemic did not help.  Just getting people back to work created bottlenecks.  The bottle neck in lumber was created by the inability to get workers back to work; but also, the lumber industry's failure to build new plants.  The lack of industry in general to build new plants has been universal.  The failure to build in the US created an extreme bottleneck when the foreign plants were either under tariffs or under the lack of workers due the Pandemic.

The term "Go West Young Man" of the 19th Century has turned into "Go East Home Buyer".  The central portion of the state has been more accommodative to buyers than the coastal areas and the Peninsula in general.

San Francisco has been the worst hit of this movement as SF saw a decrease in home prices of 8-12%; while the Metro Average was +12%.

There are some "Warning Signs".  Demand for vacation homes is wearing off.  Although the number of buyers who locked in mortgage rates to purchase a second home in May increased nearly 50% compared to a year ago, "it's the first time in a year the annual growth rate has fallen below 80%," according to the real estate brokerage industry.  Additionally, mortgage-lending rules over the last two months have tightened. Now, under the new rules, second-home and investment property mortgages can make up only 7% of a lender's total pipeline, which refers to the total number of loans that are either in processing, underwriting or closing process.

The future key is: "price of lumber, interest rates, production and productivity and the elimination of bottlenecks!"

ON LUMBER: Lumber will show us the future.  In early May 2020 the price of lumber on the commodity futures market was $1,600 per 1000 board feet.  This added $36,000 to the cost of a new home; on average, new homes sell for around $400,000.  (What a deal!) On Monday it was back below $1000 per 1000 board feet.  It is still elevated.  Before the Pandemic lumber was never above $500 per 1000 board feet.  It takes two years to build a lumber mill.  The return of workers now can increase supply immediately.  Watch the lumber prices then watch for builders to resume in areas where land is available.  Unfortunately it is not in downtown Menlo Park and Atherton or Palo Alto.  It is in the Sacramento area where builders are once again starting to create projects for new home buyers and +55 retirement communities.  These areas are price conscious.  Builders will hold back projects until lumber prices return to a level buyers will pay to move.  

The Old Chinese Curse..."May you live in interesting times"