Thursday, July 29, 2021
July 29, 2021

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In Our View: Regulation protects in hot housing market

The Columbian

The housing market in Clark County — and elsewhere — is red hot. While that is good news for many, it also generates concerns that the economy is about to get burned.

Locally, May was a busy month in the market, with sales outpacing new listings and a near-record low supply of homes for sale. The Columbian reported this week that the region’s inventory of listings — a measure of how long it would take to sell the current backlog — is 0.6 months, and sale prices are climbing quickly.

“The significant price increases in May were the result of record demand that significantly exceeded supply,” one local broker wrote in an analysis. “But that was not because there was no supply. New listings were just being absorbed as fast as they came on the market.”

That is beneficial for sellers, for homeowners who are seeing their equity increase, and for brokers and mortgage companies. It’s not great for buyers trying to enter the market as new homeowners, but that is the way real estate works — good news for one cohort is inevitably bad news for another.

The story is being repeated across the country. According to real estate brokerage firm Redfin, the national median home sale price in May was $355,558 — a 24 percent increase over May 2020. More than half of sold homes went for more than their list price — compared with 26 percent the previous May.

Of course, May 2020 was the early days of the coronavirus pandemic, which skewed the market. Now, that pandemic has been credited with altering the wish lists for homebuyers and driving demand in ways that are not yet fully understood.

Which brings up the most salient question: Is the housing market in the midst of a bubble that is about to burst? The Great Recession that began in 2008 was fueled by a collapsed housing market, creating a domino effect that reverberated throughout the global economy.

That collapse was driven by predatory loans that led to many people being unable to pay mortgages when they faced financial hardship such as a layoff. And it was driven by lenders who convinced millions of homebuyers to spend beyond their means — which also drove up prices and contributed to the calamity.

While there are parallels between that recent history and the current situation, experts say there also are vast differences.

As Bloomberg Businessweek wrote recently: “Mortgage loans are much harder to get. … Lenders have raised lending standards even beyond the requirements of the Dodd-Frank Act of 2010, which was passed in response to the financial crisis. Loans are smaller in proportion to house values and borrowers’ income. Borrowers’ average credit scores are higher. … The upshot is that while house prices could flatten in the next few years, the conditions for another crash are absent. Rather than over-easy credit, the main factors in the current price run-up are tight supply and strong demand, both of which are likely to continue.”

Among other things, the Dodd-Frank legislation created the Consumer Financial Protection Bureau. The Trump administration actively worked to undermine the bureau’s effectiveness, and Republicans in Congress succeeded in repealing portions of the Dodd-Frank bill.

Those actions have increased the risks posed by the current real estate market, but some protections remain in place that did not exist in 2008. That provides some reassurance, and it points out the need for effective regulation to prevent another economic meltdown.