Time to be a Contrarian on the Housing Market?

Time to be a Contrarian on the Housing Market?

January 06, 2021
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Sometimes, when most people believe the same thing, a big change is on the way. That thinking is known as contrarian. The housing market may be primed to give us a big lesson in contrarianism. If so, that’s not-so-good news for homeowners and real estate investors.

Contrarian theories abound concerning the herd mentality of investors. You could argue it was as much of a death note for the market as for an athlete featured on the cover of Sports Illustrated. 

We are not too terribly worried when we see only one article of this nature. But when the topic appears in many news articles, it is a potential red flag, although not a guarantee that anything will happen. The psychology of the cover curse is that, by the time something is the conventional wisdom and graces magazine covers, it has peaked.

The same contrarian thinking could be applied to the housing market, which by all accounts is sizzling in 2020.

Existing Home Sales

According to the National Association of Realtors (NAR), existing-home sales grew for the fourth consecutive month in September as each major region saw month-over-month and year-over-year gains, with the Northeast seeing the biggest jumps.

Here are a few highlights:

  • Total existing-home sales rose 9.4% from August
  • Overall sales rose 20.9% year-over-year
  • The median existing-home pricefor all housing types in September was $311,800, up 14.8% from a year ago
  • September's national price increase marks 103 straight months of year-over-year gains

Heading Towards or Already in a Bubble?

The highlights above paint a robust picture of today’s housing market and whether we’re headed for – or are already in the midst of – a bubble is really anyone’s guess. Unfortunately, we usually don’t see a bubble until it has already popped.

But consider some of the other statistics from the NAR:

  • Total housing inventoryat the end of September was down 19.2% from a year ago
  • Unsold inventory sits at 2.7-months, down from 4-months a year ago
  • Sales in vacation destination places have seen a 34% year-over-year gain in September
  • Properties typically remained on the market for 21 days in September – an all-time low
  • 71% of the homes sold in September 2020 were on the market for less than a month
  • Distressed sales – foreclosures and short sales – represented less than 1% of sales in September

Bubble, Bubble, Bubble?

Remember the “Location, Location, Location” mantra preached by realtors everywhere? Well, look at what the four major regions in the U.S. have experienced:

  • In the Northeast, existing-home sales jumped 22.9% from a year ago and the median price leapt 17.8% from September 2019
  • In the Midwest, existing-home sales skyrocketed 19.8% from a year ago and the median price increased 14.8% increase from September 2019
  • In the South, existing-home sales ballooned 22.3% from a year ago and the median price was up 13.0% from September 2019
  • In the West, existing-home sales are up 18.1% from a year ago and the median price increased 17.1% from September 2019

So, Now What?

While home prices continue to soar, interest rates are at historical lows and inventory is tight, remember when someone says: “this time it’s different.”

Because nothing goes up forever.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by FMeX.

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