‘People are coming back to the city,’ including Nashville and other affordable areas, says Redfin chief economist

Home prices are skyrocketing in cities and suburbs across the country, and bidding wars are common. Are we in another housing bubble? MarketWatch reached out to Daryl Fairweather, chief economist at real estate brokerage Redfin RDFN, + 1.11%, to find out. Fairweather earned her BA from the Massachusetts Institute of Technology and her MA and Ph.D. from the University of Chicago, where she studied behavioral economics with Nobel laureate Richard Thaler.

Below is the text of our interview, edited for ease of reading. Read: Biden‘s Proposed Tax Hikes Could Be a “ Double-Edged Sword ” for Real Estate – What Homeowners and Investors Need to Know Howard Gold: The Case-Shiller Index has risen year-over-year at the highest rate high in 15 years. Redfin has all sorts of mind-boggling statistics on rising house prices. Do you think we are now in a housing bubble? Daryl Fairweather: I wouldn’t use the word bubble, because bubbles pop and I don’t see any signs of this popping anytime soon. What is happening now is a high demand for housing, due to mortgage rates, because the pandemic is causing people to spend more time at home with remote work and encouraging people to move further afield. And at the same time, there really isn’t a lot of housing supply. The fewest number of homes were built in the 2010s compared to any other decade dating back to the 1960s. Q: Was the least number of homes built in the 2010s, since the 1960s? Thus. Builders were really scared by the latest housing collapse and didn’t take on new projects or didn’t want to take too many risks. Q: The housing supply is down 52.5% year-over-year, according to your website. How does the supply decrease so much, the number of homes for sale in a year? A: Homes will be off the market in two weeks or even just a week later [being listed]. At the same time, the number of new ads has been reduced because people are standing still. If they already own a home, they don’t see a reason to sell. Especially if they have to buy again, they will face this really competitive real estate market. Q: Is this a national phenomenon? A: It’s pretty much everywhere except Manhattan and San Francisco. Even there, home prices are pretty flat. Honolulu is also suffering a bit, because they rely on tourism. Q: Denver and Seattle have been hot for a long time. And Detroit actually showed the biggest increase, 52%. Is it because the market has been depressed for so long? A: Well, Detroit is working from a much lower base. It is one of the most affordable markets in the entire country. If a property goes from selling for $ 150,000 to $ 200,000, that’s a really big percentage increase. Q: That’s a bit anomalous, and I guess the same goes for another hot market, Cleveland? Thus. Q: But almost everyone else in your top 10 metropolitan areas is Salt Lake City; Boise, Idaho; three in Arizona; two in Florida; and one in Texas. Are we seeing this continuation of the migration to the Sunbelt that was just reflected in the 2020 census? A: It’s definitely a continuation of that, but remote work and the unaffordable places like the California coast are making it an even bigger phenomenon right now. Q: Are we seeing the most growth in the suburbs, or are there other central cities doing well as well? A: At the beginning of the pandemic, people looked towards the suburbs and rural areas, but now people are returning to the city. These are usually the most affordable cities like Nashville, for example, where the downtown area is doing well. And people still want more space. So they prefer a single-family home in an urban area to a condominium, but there are many urban areas that have a good number of single-family homes. Q: Any one in particular? A: Seattle is one. Seattle has many different combinations of properties. Even 10 minutes from Amazon’s AMZN, a -0.11% campus on Capitol Hill, you can find a single family home. But it will be very expensive. Q: In the New York, Washington, DC, and Chicago area, the suburbs are booming. Do we still see people bidding to buy in the suburbs? Thus. I’d say the suburbs are still booming, as are the rural areas. It’s just that the urban market has seen a much deeper V-shaped recovery, and we’re starting to see urban areas catch up with rural and suburban areas. Q: I read about a suburban Washington, DC repair shop that received 76 cash offers and sold for $ 200,000 above the asking price. And I think Redfin said 56% of houses were selling in bidding wars a couple of months ago. What is the current number and where do we see most of the bidding wars taking place? A: Bid wars are happening in places with the greatest housing shortage. Nationally, almost two-thirds, 64% of housing offers [were involved] in bidding wars. That was in March. Salt Lake City, followed by Pittsburgh, Boise and Virginia Beach [had the highest percentage of bidding wars]. We did an analysis of the number of cash offers that help you win a bidding war and quadruple the home buyers’ chances of winning a bidding war. Q: Who buys in general? Are they millennials? Older millennials are now in their 40s. Are we finally seeing millennials enter the home buying market in droves? A: Just from a mathematical perspective, millennials are now the largest generation. They are entering the age of buying a home. (Note: A report from the National Association of Realtors said that millennials are buying 37% of all homes and “continue to make up the largest share of home buyers.”) I think we will definitely see many more millennials entering the housing market. . Unfortunately, there are not many homes for them. Q: What is happening to the baby boomers? Do they stand still? Are you moving to Arizona and Florida? Are they getting out of the way and letting the younger ones buy? A: In fact, we have seen an increase in the number of people staying in their homes longer; I think 13 years is the median. They don’t want to go to retirement communities so much. They prefer to simply age instead. Twenty-five percent of homeowners have been in their home for more than 20 years, which is the highest proportion we have ever recorded. Q: Homebuilders’ stocks have done very well. Have you seen builders step up so that perhaps the 2020s will be a much more active decade for home construction than the 2010s? A: Yes, they are. But they face some challenges. There is a shortage of wood. It is difficult to increase, to get qualified labor, to build the houses. They are definitely building more, but it’s not enough to slow price growth or increase inventory substantially. The good news for builders is that people are moving to places where the land is more abundant. They find it much easier to build in the outer suburbs. QUESTION: The suburbs and suburbs performed very well in the housing bubble before the collapse. That’s where a lot of McMansions were built. Have they come back again? A: They are coming back. There is a community called Mountain House in the suburbs of the Bay Area. It was hit hard by the last burst of the housing bubble. (Note: In 2008, the New York Times reported that it was “America’s most submerged community” because many homes had negative net worth). It is now one of the most popular real estate markets in the entire country. Q: Are there any particular areas of weakness in this market? A: Condominiums were badly affected by the pandemic. People want more space; they don’t want to share comforts. But they are coming back. At the moment, you can still get a decent deal on a condo. Q: Single family homes is where the action has been. Is it because people want more space to build a pool or additions? Are people looking for more space and flexibility in their living room? A: They want more space. They want the home office. They want a private outdoor area, all of that. Q: You said at the beginning that we are not in a bubble. What do you see for the next two years? A: Once the economy reopens, people will want to spend their money on things other than housing, like vacations or entertainment. So the strong demand will cool down a bit. And I also believe that mortgage rates will go up once the economy recovers both in the United States and globally. That will slow down demand a bit and the market will balance out a bit more. We will go from 10 offers for a home to maybe just one or two offers. It is still a strong housing market, but not as ridiculous as it is now. Q: Do you have a 30-year fixed mortgage rate prediction? A: Mortgage rates will go up to around 3.5% by this time of next year. (Note: According to Bankrate, the benchmark 30-year fixed mortgage rate was 3.11% on Thursday.) The US is aiming for a really strong recovery, and mortgage rates could stay low if the entire world economy is weak. Q: If we are not seeing a housing bubble now with bidding wars on two-thirds of the houses sold and dozens of people trying to buy a single house, what would it take for us to have a real bubble? A: We have had about a year of this really fast price growth. If this continues for, say, three years, then it starts to get speculative, where people will buy a house assuming that house prices go up so much every year. That’s when I would definitely start to worry. Because when people start speculating and buying houses with the purpose of selling them instead of living in them, then you have to worry about that bubble. P: Mass tipping. A: Correct. Q: Thank you. Howard Gold is a columnist for MarketWatch. Follow him on Twitter @ howardrgold1.