Former FDIC chair Sheila Bair has expressed concern over the current state of the housing market, describing it as a "classic supply-demand imbalance." Bair, who witnessed the housing bubble burst in the mid-2000s, believes that home prices are unlikely to ease anytime soon. However, she also believes that a crash today would not be as severe as the one in 2008 due to homeowners having more equity in their houses.
The housing market is currently experiencing skyrocketing home prices, with the median price of an existing home sitting at $407,100 in August. This is a significant increase from August 2019 when the median price was $278,200. The total valuation of the housing market reached a staggering $52 trillion last month, and buyers are expecting prices to continue rising.
Bair attributes the high prices to limited inventory, with just 1.1 million unsold homes available in August, a 14.1% decrease from the previous year. Additionally, the rise of bond yields has led to higher mortgage rates, deterring potential sellers from putting their homes on the market. Despite the higher borrowing costs, prices remain high due to the insufficient supply to meet demand.
While Bair believes that a slight deflation of the housing bubble would be beneficial, she does not anticipate a crash similar to the one in 2008. This is because homeowners today have more equity in their homes, which reduces the risk of widespread property devaluation. She also notes that there is less speculation in the housing market compared to the mid-2000s.
In summary, Sheila Bair, former FDIC chair, expresses concerns about the current state of the housing market, citing a classic supply-demand imbalance and high home prices. However, she believes that a crash today would not be as severe as the one in 2008 due to homeowners having more equity in their homes. Bair acknowledges the limited inventory and the rise of mortgage rates as factors contributing to the high prices. Despite her view that a slight deflation of the housing bubble would be beneficial, she does not foresee a crash but emphasizes the importance of addressing the supply-demand imbalance.