3 signs that American homebuyers are solving the housing crisis by refusing to pay crazy prices

Millennial homebuyers attend open house
Prospective buyers visit an open house in West Hempstead, New York.

  • After months of surging prices, Americans seem to have had enough with the housing boom.
  • With inventory near record lows and prices climbing at the fastest rate ever, buyers aren’t biting.
  • There are many signals that buyers are cooling the market on their own, by saying no.
  • See more stories on Insider’s business page.

One question is plaguing prospective homebuyers in this red-hot housing market: when will prices start coming down? But the cure for high prices is high prices, to paraphrase a famous saying from the commodities world.

There’s evidence that buyers are providing the cure, staying away from the high prices and cooling the market by collective action – or inaction.

Here are the three signs that American buyers are slowing the housing market’s roll on their own.

(1) Sales down from their peak

The start of the pandemic – and unprecedented easing from the Federal Reserve – sparked the housing boom. Sales of new and previously owned homes still sit well above pre-pandemic levels, but both have slowed from their fall peaks.

The decline is powered, in part, by the massive shortage of homes across the US. With fewer homes to sell, the sales rate can’t remain at elevated levels.

Still, the steady decline suggests the market boom could be normalizing. It also comes as median selling prices for new and existing homes sit at record highs, presenting an affordability problem for buyers just entering the market.

(2) Buyer optimism waning

The wave of demand that powered the housing boom seems to be crashing.

More than half of surveyed Americans referenced high home prices when evaluating the market, according to the University of Michigan’s survey of consumer sentiment. The reading marks the biggest share ever recorded by the survey.

More broadly, 54% of respondents said it was a bad time to buy homes in May. That’s the most pessimistic outlook since 1982.

Anecdotal evidence supports the data. Eighty-two percent of millennials said in May they’re more likely to buy a fixer-upper due to affordability issues, according to a Bank of America survey. The generation is particularly vulnerable to the price melt-up. Millennials are nearing their peak homebuying age and already had their finances dented by the Great Recession. Unless price growth cools, the generation could be forced to cheaper alternatives to homeownership.

(3) Mortgage interest sinks

It’s not all bad for prospective homebuyers, however. Mortgage rates have only just risen from the record lows seen earlier in the year, offsetting some pressures from soaring prices.

Home loan data suggest the trade-off just isn’t appealing enough for buyers. The Mortgage Bankers Association’s Purchase Index – a gauge of mortgage applications for single-family homes – has tumbled nearly 27% from its January peak.

Forecasts suggest the downtrend is part of a larger correction. Mortgage applications surged through the second half of 2020, possibly reflecting a pulling-forward of demand as borrowing costs tumbled. But loan purchases have fallen below their projected trend through much of 2021, Len Kiefer, deputy chief economist at Freddie Mac, said in a Wednesday tweet.

To be sure, housing data is volatile, and recent readings suggest the buying surge will continue. Pending home sales soared 8% in May, according to a Wednesday report, trouncing the estimate for a 1% decline.

The long-term expectation, however, is for a widespread slowdown, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said.

“The surge in pending home sales is a huge outlier,” he said. “We still think sales will fall a bit further over the next few months, pushing up the months’ supply numbers and taking some of the heat from surge in prices.”

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House prices rose in April at the fastest rate on record

Home construction Delaney Park
Homes under construction in the Delaney Park housing development are seen from this drone view in Oakley, Calif., on Thursday, June 24, 2021.

  • Home prices soared 14.6% year-over-year in April as the nationwide supply shortage intensified.
  • The jump is the largest since the S&P CoreLogic Case-Shiller index began tracking data in 1987.
  • Home prices have surged through 2021 as builders struggle to catch up with unprecedented demand.
  • See more stories on Insider’s business page.

Another month, another acceleration in US home inflation.

Home prices throughout the US surged 14.6% from year-ago levels, according to the S&P CoreLogic Case-Shiller home price index. The reading marks a pick-up from the 13.3% rate seen in March and the fastest pace of price growth since data collection began in 1987. Economists surveyed by Bloomberg held a median estimate for a year-over-year jump of 14.7%.

Phoenix posted the largest one-year jump of 22.3%, according to a Tuesday press release. San Diego and Seattle followed close behind, with respective gains of 21.6% and 20.2%. Chicago registered the smallest gain, with home prices climbing 9.9% from April 2020.

Price growth accelerated broadly through April. All 20 cities included in the national index saw price growth land in the top quartile of historical performance. Charlotte, Cleveland, Dallas, Denver, and Seattle all notched their highest 12-month gains in history.

The US housing market has been on an absolute tear through 2021. Record-low mortgage rates and outsize demand drove sales sharply higher early in the pandemic. The buying spree quickly morphed into a price surge as Americans snapped up what little inventory existed before the health crisis. With buyers still clamoring for homes and supply only just rebounding, home inflation has spiked to highs not seen in modern history.

“This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years,” Craig Lazzara, global head of index investment strategy at S&P Dow Jones Indices, said in a statement. “Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing.”

Other indicators signal contractors aren’t likely to balance the market anytime soon. Housing starts rose just 3.6% in May, missing the economist forecast and offsetting just some of the prior month’s 12.1% slide. Building permits – which act as a more forward-looking indicator for residential construction – tumbled 3% to the lowest level since October.

The construction shortfall is likely to keep price growth elevated in the near term. Decades of inadequate homebuilding have left the country with a shortfall of up to 6.8 million units, according to a June report from the National Association of Homebuilders. Contractors would need to reach an annual construction pace of 2 million units to fill the gap in 10 years. But with starts sitting at just an annualized rate of just 1.57 million as of May, price pressures are set to linger well into the economic recovery.

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The US housing boom helped wealthy homeowners the most

House for sale US
A house’s real estate for sale sign shows the home as being “Under Contract” in Washington, DC, November 19, 2020.

  • The housing market rally has largely benefitted wealthy homeowners as prices soar at record pace.
  • Sales of homes priced over $1 million are up 245% year-over-year. Homes worth under $100,000 are down 11%.
  • The gap is just one of several K-shaped trends in the uneven economic recovery.
  • See more stories on Insider’s business page.

Like many other aspects of the US recovery, the housing market’s boom has been anything but even.

The market rally started as a broad upswing. After home sales tumbled at the start of the pandemic, surging demand and low mortgage rates spurred a nationwide buying spree. But as the boom charged forward, a K-shaped split emerged in which type of homes were rapidly gaining value and which were being left by the wayside.

The term “K-shaped recovery” has come to exemplify uneven elements of the US’s economic rebound. Wealthier Americans generally fared better through lockdowns as they switched to remote work and leaned on savings. Low-income Americans and minorities, however, have longer recoveries ahead of them after being disproportionately hit by the COVID-19 recession.

Existing home sales data published Tuesday reveals just how wide that gap has become in housing. Sales of homes worth at least $1 million have surged 245% year-over-year, according to the National Association of Realtors. That’s a larger jump than any other price category.

Conversely, sales of homes worth less than $100,000 have plummeted 11% from May 2020 and sales of homes worth between $100,000 and $250,000 dipped 1.7% through the year.

The disparities point to growing inequity in the US housing market. Homes worth up to $250,000 accounted for about 30% of sales in May, while those worth more than $1 million only represented 6.3% of sales.

The sales gap widened even further in the spring. As dire inventory shortage drove home-price inflation to its fastest rate since the mid-2000s market bubble with demand handily outstripping supply, sales for the most expensive homes soared even higher, and sales of homes costing less than $100,000 dropped lower.

Taken together, the country’s wealthiest homeowners benefitted most from the price rally, and those living in the country’s least-expensive homes have largely missed the market upswing.

Other data suggest the trend will continue through the summer. Housing starts have wavered in recent months as expensive lumber costs and lot shortages cut into homebuilding. And sales of new homes slid again in May, suggesting contractors are far from meeting massive demand with new supply.

New homes that have gone to market are also more skewed to wealthier buyers than a year ago. Where the majority of new homes in May 2020 were priced between $200,000 and $299,000, the majority now cost between $300,000 and $399,000, according to the Census Bureau.

The shift has little to do with more expensive units hitting the market, Ali Wolf, chief economist at housing platform Zonda, wrote in a Wednesday tweet. Instead, the change reflects price growth over the last year. Roughly 95% of contractors raised prices from April to May, and most of the increases averaged $10,000 or more, Wolf said.

Addressing the shortage will take a massive effort, according to NAR’s estimates. Decades of underbuilding and losses of existing homes left the US with a supply shortage of about 6.8 million houses, according to a report published earlier this month.

Builders will need to accelerate construction to 2 million units per year should they aim to fill the hole over the next decade, NAR added. That would be a sizeable jump from the May pace of 1.57 million homes per year.

“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” Lawrence Yun, chief economist at NAR, said in the report.

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How the American consumer may be saving the economy by spending less – and keeping inflation at bay

car shopper window sticker dealership
A car shopper looks at a window sticker in a dealership.

  • Early indicators suggest Americans are cutting spending on certain items, which is keeping inflation at bay.
  • Prices for used cars and homes skyrocketed in the spring, and consumers now seem wary.
  • Since durable goods fueled much of the recent inflation overshoot, lower spending on them could halt a spiral.
  • See more stories on Insider’s business page.

Inflation is back, maybe you heard. Or is it?

One side of the debate that has raged since the economy reopened argues Democrats’ latest stimulus is lifting inflation to dangerous levels.

The other camp, which includes the Biden administration and the Federal Reserve, attributes the recent jump in price growth to the economic reopening and views the overshoot as “transitory.” But it was quite a jump, as inflation soared to its fastest rate since 2008 in May.

For all the hemming and hawing over inflation, countering dangerous price growth is relatively simple: Consumers’ spending habits decide whether inflation spirals out of control. After governments reversed lockdown measures and vaccines reached arms, retail sales hit record highs, as reopening turned into a bona fide spending boom.

The problem with this spending boom is that supply has come up short. Bottlenecks throughout the global economy have slowed the production of goods ranging from furniture to ketchup, causing shortages almost everywhere you look and, in turn, massive price increases. And it’s spending on stuff, or durable goods – think cars and appliances rather than food and fuel – that has led broad inflation gauges higher through reopening. Prices within the category rose 3% from April to May alone after soaring 3.5% the month prior.

The American consumer is pretty intelligent, though, as early signs suggest they are shifting their spending patterns, in apparent recognition that a few key items are way out of step in terms of price increases. Instead of caving to higher prices, Americans appear to be holding off on some purchases and giving suppliers some extra time to catch up.

Used car and truck prices were the single largest contributor to the Consumer Price Index in April and May, rising 10% and 7.3%, respectively. A global shortage of semiconductors hobbled auto manufacturers through spring, leaving many to seek out previously owned vehicles.

Yet recent indicators show the price surge slowing sharply in June. The Manheim Used Vehicle Value Index rose just 0.3% in a preliminary June reading, down from the 4.8% jump in May. The meager increase signals used-car inflation could be nearing its peak before reversing course.

Separately, 24% of Americans referenced high vehicle prices when evaluating the autos market in May, according to the University of Michigan’s consumer sentiment survey. That’s the highest reading since 1997.

A similar trend is emerging in the housing market. Sales of both existing and newly built homes slid again in May as a dire housing shortage has sent prices soaring. At the same time, a record-high 48% of consumers cited high prices in their evaluations of the housing market, according to the University of Michigan survey.

The unevenness is “all common sense,” John Cochrane, a senior fellow of the Hoover Institution at Stanford University, wrote in a June 10 blog post.

“Bar and restaurant prices went down in the pandemic, less so TVs and gym equipment, and ‘stuff’ is now really getting hard to find and to produce,” he added.

There’s reason to be optimistic, according to Bank of America economists. Demand is likely to persist well after supply constraints are addressed. Americans spending today will simply pay a “temporary inflation tax” on some goods, and those deferring their demand will drive a jump in activity once price growth cools, the team led by Ethan Harris said.

“While a lot has been made of the temporary inflation pressures, there is much less discussion of the temporary constraint on real activity. However, you can’t have one without the other,” they added.

In other words, it depends on all of us, and our spending habits, to make sure inflation doesn’t spiral out of control, and we are looking pretty responsible about that in the summer of reopening.

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Global housing prices surge the most since 2006 as the market shows signs of overheating

US housing market
  • Global home prices rose 7.3% in the year to March, according to the Knight Frank Global House Price Index.
  • That’s the fastest price growth since 2006 and comes as some nations look to cool their housing markets.
  • Turkey, New Zealand, and Luxembourg saw the largest jumps, while prices fell in India and Spain.
  • See more stories on Insider’s business page.

It’s not just the US housing market that’s on an absolute tear.

Home prices around the world are surging as strong demand squares off against strained supply. The average home price across 56 countries and territories rose 7.3% in the year to March 2021, according to the Knight Frank Global House Price Index. The jump marks the fastest rate of global home-price inflation since late 2006. Thirteen countries registered double-digit increases, and developing nations made up most of the top-ten gainers.

Turkey saw the largest price increase over the period, notching a 32% year-over-year bounce. New Zealand and Luxembourg followed with 22.1% and 16.6% increases, respectively.

The US registered the fifth-largest jump, with prices climbing 13.2% in the year to March. That marks the fastest rate of price growth since early 2005.

Government responses to the COVID-19 crisis are partially behind the international housing boom. Central banks around the world slashed interest rates in March 2020 which quickly dragged borrowing costs to historic lows. Couple the ultra-easy monetary policy with trillions of dollars in fiscal stimulus, and demand quickly outpaced supply across several markets.

What began as a surging sales pace has since turned into a red-hot housing boom. Supply shortages have hindered a pick-up in construction activity, leaving prices to surge as demand holds strong.

With home inventories under incredible pressure, some countries are moving to cool markets down before prices skyrocket further. Officials in China, New Zealand, and Ireland have used a range of tools to rein in home inflation, including new residential taxes and stricter lending policies.

“With governments taking action and fiscal stimulus measures set to end later this year in a number of markets, buyer sentiment is likely to be less exuberant,” Knight Frank said in the Thursday report. “Plus, the threat of new variants and stop/ start vaccine roll-outs have the potential to exert further downward pressure on price growth.”

Not all large-scale economies face overheating housing markets. Prices contracted 1.8% in Spain and 1.6% in India in the year to March, according to the Thursday report. Such declines were likely powered by strict lockdown measures and excess supply, Knight Frank said.

How to cool a red-hot market

Housing indicators in the US suggest the market tightness will last for a while longer. Home starts slid nearly 10% in April as soaring lumber costs and lot shortages cut into the supply rebound. Roughly 20% of contractors said in an April survey that they were delaying construction and sales, possibly due to squeezed profit margins.

Economists surveyed by the Urban Land Institute expect homebuilding to accelerate over the next few years as firms look to service outsize demand. The increase in home inventory should help price growth cool; The economists see home-price inflation returning to its pre-pandemic average of about 4% in 2023.

Still, the forecasts see demand outstripping supply into the mid-2020s. Unless the trend changes, millennials risk being priced out of the US housing market just as they reach their peak buying age.

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5 trends fueling one of the hottest housing markets in US history

Housing market
  • The housing market is on fire, with a supply shortage driving prices to record highs.
  • But alternative signals show the market isn’t just tight, it’s changing in much more fundamental ways.
  • Here are the five structural shifts that are fueling the red-hot US housing market.
  • See more stories on Insider’s business page.

The housing market is on fire.

What began as a pickup in demand early in the pandemic has evolved into an all-out buying spree. Sales of new and previously owned homes, while off their peaks, remain elevated. Construction has picked up somewhat, but contractors are struggling to shore up supply. With inventory sitting near record lows, price growth has accelerated to rival the 2000s housing bubble.

Reports published Tuesday confirmed the boom is alive and well. Prices soared through March at the fastest rate since 2005, according to S&P CoreLogic. Separately, Census Bureau data showed new single-family home sales slowing 5.9% through April. Still, the sales pace sits well above the pre-pandemic norm.

But it’s not just conventional gauges posting shocking superlatives – fundamental change is afoot in US housing. Alternative data, from lumber prices to the realtor-to-listing ratio, show a handful of structural shifts taking place throughout the market. Glenn Kelman, CEO of real-estate brokerage Redfin, unpacked several of them on a Twitter thread that racked up more than 14,000 likes in less than 48 hours.

Here are the five major changes reshaping the US housing sector.

1 – Buyers face a persistent shortage of available homes

Home for sale
A real estate sign is seen in front of a house for sale in West Los Angeles on November 20, 2020.

At its core, the market boom is simply a result of too few homes. Economists are largely confident that, while trends are similar to the mid-2000s bubble, it’s a nationwide supply shortage driving prices higher, and not risky lending practices.

  • More realtors than listings

The number of available homes in the US totaled 1.16 million at the end of April, according to the National Association of Realtors. NAR ended last month with 1.48 million members.

The association’s membership has exceeded listings through much of the year as sales bite into home availability.

  • Historically low inventory

The national supply of available homes in the US plummeted to record lows at the start of the pandemic and have only just risen from those levels through 2021. The monthly inventory rose to 4.4 months in April, but the bounce has as much to do with a slowing pace of sales as it does with a pickup in construction.

  • Homes selling at a record pace

When homes are coming up for sale, they aren’t staying on the market all that long. The average home now sells in a record-low 17 days, Kelman wrote on Twitter.

2 – People are fleeing cities for cheaper locales

moving
BOSTON, MA – SEPTEMBER 1: Edward Cardona (left) and Cameron Secorsky take it carry a house plan on top of a couch as they move in Allston, Sept. 1, 2016. September 1st in Boston is also known as “September Worst” because of the chaos of moving, and “Allston Christmas” because of all the things that are left on the curb for the taking when people move in and out of apartments. (Photo by David L. Ryan/The Boston Globe via Getty Images)

The story of the 2020-2021 housing market is also one of migration. Americans largely fled densely populated cities for suburbs and traded their apartments for homes while mortgage rates were low. And after years of intense crowding in metropolitan areas, people seeking more space during the work-from-home period rushed to less populated states.

  • Low-tax states seeing huge inflows

Attractive tax rates seemingly played a major role in the moving bonanza. Four people moved into low-tax states for every one that left, Kelman said. That ratio rose to 5:1 in Texas and 7:1 in Florida.

  • Moving families face a new status quo

Americans who moved during the pandemic took a few risks. In a Redfin survey of 2,000 homebuyers, 63% said they bid on a home they hadn’t seen in person yet.

Separately, those moving to low-tax states enjoyed far lower housing costs. In many instances, the money saved allowed one parent to stop working, and many buyers are retiring early, Kelman said in a Wednesday tweet.

  • Inventory and prices up in SF and NYC

Still, some of the country’s biggest cities aren’t down for the count. Inventory has swung higher in New York City and San Francisco by 28% and 77%, respectively, according to Kelman. Yet prices are increasing steadily in both markets, suggesting that, while many are moving out, enough are moving in to support already lofty prices.

3 – It’s getting more and more expensive to build homes

construction workers building home
Construction workers build a new Centex home on Tuesday, June 23, 2020, in Houston.

The simplest solution to slowing homes’ rapid price growth would be to increase supply. Yet the combination of a historic surge in demand with supply-chain bottlenecks as the economy reopened have hindered contractors.

  • Lumber prices exploded higher

Most recently, surging lumber costs cut into builders’ efforts. Prices soared to record highs earlier in May and closed 280% higher year-over-year on Tuesday.

  • Not enough building space

Even if lumber cost less, there’s scant room to build homes. The New Home Lot Supply Index — which tracks lots ready for building — fell 10% to a record low in the first quarter, according to housing analytics firm Zonda.

Even the firms that have empty lots are running behind in converting them to sellable homes. About 242,000 authorized homes hadn’t been started yet in April, the Census Bureau said last week. That’s the highest level since 1979. 

  • Builders waiting for the opportune moment

The various shortages and bottlenecks have led builders to hit the brakes and wait for profitability to rebound. Nearly one-in-five contractors surveyed by the National Association of Realtors in April said they’re delaying construction or sales.

About 47% said they added escalation clauses to contracts last month. The clauses allow contractors to lift homes’ selling prices to offset an increase in building costs.

4 – Pricey construction, unrelenting demand is driving stronger home inflation

housing

With builders unable to meet demand with new supply, prices predictably shot through the roof. Experts see home-price inflation staying hot into 2023, and with selling prices already elevated, a long rally could further dent home affordability across the US.

  • Prices hit record highs

While the rate of sales has cooled slightly, price growth remains strong. The median selling price of new homes rose to a record-high $372, 400 in April, the Census Bureau said Tuesday.

The median price for previously owned homes rose to a record of its own last month. The average existing home cost $341,000 in April, the National Association of Realtors said on May 21.

  • Sell-over-ask at record highs

For those looking to sell, there’s never been a better time. Homes are selling on average for 1.7% above their asking price, Kelman wrote on Twitter. That’s the largest average overshoot on record.

 

5 – Americans increasingly prioritize value and space

open house homebuyers

Still, not all buyers are losing out as the market boom charges onward.

  • Two-thirds of buyers say they snagged great deals

A Redfin survey of 600 homebuyers found that about two-thirds of people who moved during the pandemic bought a unit that was the same size or larger than their previous home. The same share of buyers spent the same or less on housing, the firm added.

  • Most had more cash after they moved

Moving during the pandemic also tended not to break the bank. Of the Americans reporting they moved into larger homes, 78% said they have the same amount of disposable income or more after their move, Kelman said.

“Idaho home price could triple and still seem affordable to a Californian,” the Redfin CEO said in a tweet.

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The home-construction boom sputtered out in April as prices surged higher

Home construction
A red-hot real-estate market has kickstarted new home construction, but builders face a shortage of lumber.

  • US housing starts fell 9.5% in April, erasing much of the March surge that looked likely to provide much-needed supply.
  • The lack of adequate inventory has driven up home prices in recent months as demand remains red hot.
  • Soaring lumber prices and supply bottlenecks likely weighed on construction, one economist said.
  • See more stories on Insider’s business page.

Potential buyers will need to wait a little while longer for the housing market to cool off.

US housing starts slid 9.5% in April to an annualized rate of 1.57 million units, the Census Bureau said Tuesday. That’s well below the median estimate of a 1.7 million pace from economists surveyed by Bloomberg. March’s huge upswing was revised slightly lower to a rate of 1.73 million.

The reading erases much of the sharp improvement seen through March and suggests contractors’ efforts to shore up supply are hitting snags. Lumber prices skyrocketed through April as shortages slammed the construction sector. While the housing market remains robust, the Tuesday report signals inventory pressures won’t be alleviated so easily.

“Strong demand, a need for inventory, and homebuilder optimism will support housing starts over the rest of 2021, while record-high lumber prices and supply chain bottlenecks may act as headwinds,” Nancy Vanden Houten, lead US economist at Oxford Economics, said in a note. The firm expects starts to average 1.6 million through the year, which would mark the fastest pace of home construction since 2006.

In more encouraging data, building permits rose 0.3% through April. Permits are more forward-looking than starts, suggesting contractors expect to ramp up construction through the year. There’s also a growing backlog of permitted homes that haven’t been started yet. The recent decline in lumber prices and easing of some supply bottlenecks could pull forward that construction, Vanden Houten said.

Housing starts will be the indicator to watch as the red-hot market charges into the summer. Sales of existing and previously owned homes, while still elevated, have dropped off in recent months as massive demand runs up against a nationwide supply shortage.

That imbalance has driven prices higher throughout the year. Home-price inflation hit a record-high 12.2% in February, the Federal Housing Finance Agency said on April 27. The lingering shortage and lack of an immediate supply boost likely kept price growth strong in March and April.

The shortage and months-long price surge led some to worry that the market is repeating the boom-and-bust cycle of the late 2000s. Experts told Insider last month that, while prices will likely climb further, the current rally has more to do with a lack of inventory than the risky lending that fueled the 2008 crash.

The Federal Reserve backed the outlook following its April policy meeting. The central bank is “carefully” monitoring the housing market but doesn’t see the “kind of financial stability concerns” that emerged in the late 2000s, Fed Chair Jerome Powell said in an April 28 press conference.

“My hope would be that over time, housing builders can react to this demand and come up with more supply, and workers will come back to work in that industry,” he added.

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5 warning signs in the real-estate market that recall the mid-2000s housing bubble

housing
  • Several gauges of housing market activity mirror trends seen just before the bubble burst in 2008.
  • Experts see the current boom as far safer than the prior rally, citing stronger lending requirements.
  • Still, here are trends ranging from home prices to construction activity that resemble 2005 and 2006.
  • See more stories on Insider’s business page.

Housing-market monitors keep repeating the phrase “since 2005,” except when it’s “since 2006.” That’s worrying – both superlatives refer back to the peak of a historic real-estate bubble.

Low mortgage rates and massive demand have powered a supercharged rally for US housing over the last year. Americans snapped up nearly all the available supply of new and previously owned homes amid huge population shifts from cities to suburbs. Chronic underbuilding after the financial crisis left contractors struggling to meet the new demand with adequate supply. That imbalance has since pushed selling prices skyhigh.

The boom’s frenetic nature has led many to compare the current market with that seen just before the infamous 2008 crash. Experts have been quick to note that, while some similarities exist, the latest price surge has more to do with a lack of inventory than dubious lending standards.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Federal Reserve Chair Jerome Powell said last month. “We don’t see bad loans and unsustainable prices and that kind of thing.”

But just because the market looks different on a macro level doesn’t mean there aren’t strong similarities to the period just before the bubble burst. Here are five housing-market signals flashing the same signs seen about 15 years ago.

(1) CoreLogic Home Price Index

Possibly the most basic indicator of just how much demand has outstripped supply is nationwide price indexes.

The headline price gauge for housing-data authority CoreLogic soared 11.3% year-over-year in March, according to a Tuesday report. That marks an acceleration from the February rate of 10.4% and the fastest rate of price growth since March 2006. On a month-over-month basis, prices rose 2% from their February levels.

The financial analytics firm sees that momentum cooling over the next year. A persistent wearing-away of home affordability will likely curtail some purchases, and accelerated construction will shore up supply in the months ahead, CoreLogic said. Still, year-over-year price growth should reach 3.5% as lingering demand keeps the rally alive, Frank Martell, the president and CEO of CoreLogic, said in a statement.

“With prospective buyers continuing to be motivated by historically low mortgage rates, we anticipate sustained demand in the summer and early fall,” he said.

(2) S&P CoreLogic Case-Shiller Index

Separately, a more city-focused measure of home-price inflation notched a similar reading last week. Home prices in metropolitan areas gained 12% year-over-year in February, according to the S&P CoreLogic Case-Shiller Home Price Index, the headline index of US home prices for more than three decades. The reading signals the strongest price growth since 2006 and edged slightly higher from the prior annual gain of 11.2%.

Inflation was broad-based. All 20 cities saw home prices climb, and 19 cities saw year-over-year price growth accelerate from January to February. Prices rose the most in Phoenix, San Diego, and Seattle, according to S&P.

(3) Selling prices for new vs. previously owned homes

Digging deeper into home sales reveals an unusual phenomenon unseen since the previous boom. For the first time since 2005, Americans spent more on previously owned single-family homes than on new construction, according to March housing data from the Census Bureau and the National Association of Realtors.

The dynamic signals Americans are prioritizing buying any available home instead of hunting down a new unit.

To be sure, monthly sales data is volatile and the premium for new homes could reemerge in April data. But with supply still under pressure and CoreLogic’s Tuesday report showing prices broadly climbing higher last month, the phenomenon might linger for some time.

(4) Home starts

As gauges of market demand soar to 15-year highs, so have measures of upcoming supply. Housing starts surged nearly 20% in March as contractors rushed to address the lack of new homes for sale. The leap places the annual rate of starts at its highest since 2006 and serves as the largest month-over-month gain since 1990. Permits for new residential construction also increased, albeit at a slower rate.

The rebound was somewhat prompted by winter storms curbing construction activity in February. But for the most part, a historic shortage of available homes fueled the pickup in building. Just 1.07 million existing homes were up for sale in March. That sum, at the current purchase rate, would be snapped up in only two months.

Homebuying has slowed from its pandemic-era peak, giving contractors slightly more time to meet the elevated demand. With millennials hitting peak homebuying age and lumber prices expected to decline, some economists see the rebound in construction paving the way for more moderate price growth.

(5) Home equity take-out

The sustained acceleration of home price growth has also lead owners to take out equity at the same rate seen in the mid-2000s. Homeowners refinancing their mortgages pulled roughly $50 billion in equity out of their homes throughout the fourth quarter of 2020, according to data from Freddie Mac and the Urban Institute.

Mortgage rates, while still at historically low levels, reversed their pandemic-era decline through the first quarter as investors braced for the economic recovery to give way to higher borrowing costs. Those higher rates erased the rate-reduction incentive for refinancing, making equity take-out the top reason to refinance, the Urban Institute said in a report published April 27.

Although equity take-out on its own is normal, the sharp uptick seen last year could be cause for concern. Some economists have criticized the Fed’s ultra-accommodative policy for encouraging risk-taking across various markets. Increased equity take-out presents new financial risks for participating homeowners since a decline in home prices from their skyhigh levels could cut deeply into their balance sheets.

And while equity take-out sits at its 2005 level, it is still well below the 2006 peak. Yet with mortgage rates expected to climb over the next few years, take-out refinancing could accelerate further.

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Expensive lumber costs have added $36,000 to the average price of a new home, report finds

construction workers building home
Construction workers build a new Centex home on Tuesday, June 23, 2020, in Houston.

  • Expensive lumber has added to the costs of new houses in a year when all house prices have skyrocketed.
  • NAHB found that soaring lumber costs have added $35,872 to the average price of a new home.
  • Experts are concerned that high home prices will hinder homebuying for many – especially millennials.
  • See more stories on Insider’s business page.

Just a few months ago, in February, the National Association of Home Builders (NAHB) released shocking data about how the historic appreciation in lumber prices was crimping the housing market. A newbuild was $24,000 more expensive, on average.

Three months later, that number now stands at $35,872.

The housing market took off last summer, as the pandemic enabled many to work from home indefinitely, and with mortgage rates so low, many people rushed to buy new homes. But the pandemic shut down lumber production, and it hasn’t kept pace with building since.

“This unprecedented price surge is hurting American home buyers and home builders and impeding housing and economic growth,” NAHB Chairman Chuck Fowke said in a statement. “These lumber price hikes are clearly unsustainable. Policymakers need to examine the lumber supply chain, identify the causes for high prices and supply constraints and seek immediate remedies that will increase production.”

A report from the NAHB in February said the lumber supply chain impact came as factories shut down almost immediately last March for safety reasons, and then as demand spiked, supply couldn’t keep up. Lumber prices have jumped by 340% compared to last year.

Insider reported on March 26 that because lumber prices are so high, home builders have been building fewer homes and intentionally raising prices to keep up with the high demand for houses amidst the low supply of lumber.

In addition, a report from Redfin – a real estate brokerage- found that the average home sale price hit an all-time record in March, increasing 16% year-over-year t0 $331, 590, and with about one in three homes being sold for more than the asking price in February, experts like Redfin Chief Economist Daryl Fairweather are concerned.

“When the pandemic is over, purchasing a home is going to cost much more than ever before, putting homeownership much further out of reach for many Americans,” Fairweather said in a statement. “That means a future in which most Americans will not have the opportunity to build wealth through home equity, which will worsen inequality in our society.”

Insider’s Hillary Hoffower reported on April 30 that the pandemic and the lumber shortage are combining to put homeownership out of reach for many, but especially the millennials entering their prime homebuying years. Fairweather told said the housing shortage is leaving millennials “boxed out of the housing market.”

On March 12, the NAHB, along with more than 35 other housing organizations, wrote a letter to Commerce Secretary Gina Raimondo asking her to examine the lumber supply chain and look into solutions for the high costs.

They said: “Housing and construction can do their parts to create jobs, boost the economy to its pre-pandemic strength, and provide safe and affordable housing for all Americans, but in order to do so the federal government needs to address skyrocketing lumber prices and chronic shortages.”

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Lumber prices could climb another 12% this year after hitting a record high in April, Piper Sandler strategist says

Logging facility, Vermot
A logging facility in Bristol, Vermont.

Piper Sandler’s Craig W. Johnson, CFA, CMT said he believes Lumber prices could “very easily” move above $1,300 per thousand board feet this year even after notching a record high in April.

That figure represents a 12% increase from Tuesday’s closing price of $1,154 per thousand board feet. Lumber prices have soared more than 250% in the past year alone.

In an interview with Insider, Johnson, a technical research market strategist, said that lumber prices have broken out of a “huge consolidation” that occurred from 2018 through 2020 and are set to soar amid the economic reopening.

Based on technical analysis, Johnson sees lumber prices continuing to rise to at least $1,300 over the next six to nine months.

The strategist noted that there is an enormous demand for housing and renovations that’s pushing lumber prices higher.

Johnson said that with interest rates as low as they are, there’s an overall sense that this is the lowest mortgage rate many people are ever going to get.

As a result of these low mortgage rates, a new work-from-home trend, and young people moving out of cities, home buyers are lapping up properties at historic rates, and that’s putting pressure on lumber supply.

Johnson also said that timber companies are struggling to catch up with demand after shutting down some of their operations during the pandemic.

The technical research strategist added that, based on what he’s been reading, timber companies won’t be putting more sawmills in place to meet demand either because they lack the economic incentive to add capacity.

Creating more sawmills is a capital-intensive process that requires producers to get permits, and that can’t be done quickly.

Johnson also said the upcoming hurricane season could exacerbate the lumber price issue by adding to demand.

When asked what could stall rising lumber prices, Johnson said that only the slowing of economic activity would cause prices to fall, but noted that right now he believes that’s unlikely as we are in the “great wide open” for economic growth post-pandemic.

Lumber traded up 2.7%, at roughly $1,212, as of 12:04 p.m. ET on Wednesday.

Watch it trade live here.

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