Is the market showing signs of a housing bubble? The Federal Reserve Bank of Dallas thinks it’s possible and warned this week that the market is showing “signs of a brewing US housing bubble.”
FOMO (fear of missing out) is a key factor causing concern. Buyers – both prospective owner-occupants and investors – are skipping inspections and coping with rapidly rising prices and bidding wars to make sure they aren’t left behind. As more prospective home buyers believe that prices will continue to rise even faster, they will be willing to make even more concessions to the seller out of concern that the prices will be even higher in a few months or years to come.
However, FOMO purchases that end up being rash decisions not only cause the market to overheat but lead to increased incidents of buyers’ remorse. If there is a market correction in the near future, that will be even more problematic for the home owners who are already seeing reasons to regret their purchase.
Some COVID-era buyers took money they had been spending on travel or on rent close to downtown offices and redirected to the purchase of a home, often with space for a home office, backyard entertaining, and away from city centers. However, as pandemic restrictions ease, some new homeowners regret not having that budget for travel. Others expected to be able to make renovations to improve a quickly bought home, but were surprised by the high cost and delays involved in everything from new floors to appliances and furniture.
This delayed ability to make a home the way a new homeowner would like it to be will contribute to extending the COVID-era home improvement boom. Still, the heat of the market is something to watch. Many economists agree that changes in lending practices since the 2008 recession will limit the impact if a bubble bursts. However, remodeling activity and trends in updating homes have long been a more important part of the construction industry and the willingness of homeowners to invest in their properties is crucial to the health of the market.
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