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New data from the Census Department released last week reveal that the average cost of a new home hit a record high in February at $511,000. Now, the Federal Reserve is warning about a housing bubble.
The Daily Wire’s Cabot Phillips joined Thursday’s episode of “Morning Wire” to explain more about the skyrocketing housing market.
Housing prices have spiked 25% over the past year, and since 2012, the cost of a new house has doubled, Phillips explained. “Cities with the biggest spikes were Phoenix, Miami, and Tampa, but overall, it was houses in southeastern states that saw the largest spike in 2021,” said Phillips to “Morning Wire” hosts Georgia Howe and John Bickley. “But again, it’s really everywhere across the country.”
Phillips was asked exactly why housing costs are spiking so much. He pinned the reasons on inflation, which is currently at an 8% year-to-year rate, rising costs for lumber and fuel, and the COVID-19 pandemic. “During the pandemic, new construction projects were halted across the board, and that means the number of houses now up for sale is far lower than usual. It’s simple supply and demand,” he said. “And unfortunately on that front, it will likely take years for new home construction to once again meet demand.”
Another reason for the high demand, and consequently high prices, of new houses is the shift to remote work during the pandemic. As people were allowed to work their high-paying jobs from home for companies in big cities like Los Angeles and New York, they were able to leave those cities and live in smaller, cheaper neighborhoods. This set off bidding wars, Phillips explained.
The continued rising costs in the housing market have caused the Federal Reserve to warn of a housing bubble, something not seen since just before the market crash of 2008. Phillips said this means the Federal Reserve sees people overpaying for houses causing a “market exuberance.” The Federal Reserve called the exuberance “unhinged from fundamentals” and “abnormal … for the first time since the boom of the early 2000s.”
There is some hope for the housing market to calm down. “Some Real Estate experts say that increasing mortgage rates should cool the market a bit,” Phillips commented. “Remember, mortgage rates were down around 2 percent during the pandemic, so a lot of people were simply able to afford houses that a few years earlier when rates were higher, would’ve been out of their price range.”
Other experts aren’t as optimistic for the near future, however. They believe that “until the supply of houses meets the overwhelming demand that we’re seeing right now, prices will continue to rise,” Phillips said.
Thursday’s episode of “Morning Wire,” and all episodes of the podcast, can be found here.