The Housing Lottery
Buying a home during the pandemic was akin to playing lotto. Dozens of eager buyers lining up for virtually any property on the market, each player determined to outbid competitors for mediocre properties with sh**loads of issues.
Waive the home inspection? No problem!
Increase the offer by 30%? Of course!
Dispense with the loan contingency? Why not?
Omit the appraisal? Sure, who needs a lender, we’ll pay all-cash.
This insane rush to beat the competition defied all logic and common sense. Many realtors made out like bandits helping clients to buy (or sell) over-valued properties.
As mentioned in “A Tale of Two (Real Estate) Markets,” 75% of those who bought during the pandemic ultimately came to regret their purchase (according to the NY Times). These remorseful homeowners felt pressured to buy whatever property they could lest they lose out. It was precisely this sentiment that characterized the last housing bubble (2001-2006). Although lending criteria are stricter now, those who lose their jobs (and hence the ability to pay the mortgage) are likely to lose their homes as well. The coming recession may not be as severe as the “Great” one (2007-2009) but a great many homes will be given up to the banks during the housing “correction” that ensues.
The current housing shortage is not only impacting home prices but also rents. In certain cities, bidding wars are breaking out, with dozens of hopeful renters traipsing through apartment after apartment, competing with a multitude of other hopefuls for the privilege of paying exorbitant rent. Go figure…
Something’s got to give or there’ll be tent cities across America.
The Fed’s current plan (raising the Federal funds rate until inflation’s tamed) is a potential prescription for more than a mild recession. If successful, the “solution” to the current housing crisis may indeed be tent cities (back to the 1930s).
There is another path, but in today’s political climate, not a likely one. Moreover, it would take years to address the housing crisis in a definitive way. The solution is one several European countries have used to keep their citizens housed.
The answer is …
A Federal program, perhaps administered through the states, to promote the building of six (or more) million housing units over the next ten years through cash grants and incentives. This taxpayer-subsidized housing would only be available to US citizens and permanent residents, and subject to strict controls on its cost to buyers and renters. More on this later.
For a more detailed discussion about how to buy a home in these most challenging of times read House Hunter Confidential, available on Kindle.