A real estate reckoning could be on the way, analyst warns

With housing prices rising exorbitantly during the pandemic and homebuying becoming more unaffordable for many people, a reckoning in the housing market could soon occur, according to analysis from Florida Atlantic University real estate economist Ken H. Johnson.

Housing prices and rents have risen so far above their long term trends, or the measurement of where pricing should be for housing, that most housing markets will face some sort of repercussions, his analysis indicates.

“We are in a period now in which both home prices and rents are significantly above their respective long-term trends. In short, millions of Americans should prepare for major repercussions,” Johnson wrote.

The severity of those repercussions, though, vary widely from city to city, depending on some key factors, he says.

Areas that aren’t experiencing significant population growth will see a decline in home values and rents, which should make them more affordable, but also causing losses in family wealth tied to housing from which it could takes years to recover. Areas where Johnson feels this could be the case include Detroit, Youngstown, Ohio and Memphis and Buffalo, New York.

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Currently, the South Florida housing market is 30% overvalued compared to its long term pricing trends, and our region’s low inventory levels and high influx of population will result in a prolonged period of unaffordability, according to Johnson.’

In South Florida, the amount of homes and rental units aren’t enough to match the influx of people moving to the area, so it’s unlikely that prices will decline in the near future.

Johnson warns that the protracted unaffordability could price out much of the middle class, leading to possible worker shortage issues.

“We need that right mix of teachers, policemen, firemen. As soon as we start losing that talent, we are losing that underpinning,” he said.

Other areas that could face a prolonged affordability issues include Nashville, Tennessee, parts of Texas, North Carolina and other parts of Florida.

The longevity of the affordability crisis hinges on when enough supply comes to the market to meet the influx of people moving to the prospective areas. It will be a delicate balance, however, to make sure there is not an over supply of units on the market, Johnson said.

“We had one of these time periods in the mid to late ’80s, we saw a three to four year cycle where rents were relatively high and so were housing prices, but they weren’t going up anymore,” he explained. “It took three or four years to get back to the long term trend as more inventory came back to the market.”