Boom or bust?

MARY REICHARD, HOST: Up next on The World and Everything in It: America’s housing boom.

How long can it last? The United States saw a historic surge in home prices this year with houses in short supply and remarkably low interest rates.

MYRNA BROWN, HOST: Fortune Magazine reports that between August of 2020 and August of 2021 U.S. home prices notched a gain of about 20 percent. That was the largest uptick on record.

That has many people still wondering if this is a big housing boom or another bubble that just might burst in 2022.

REICHARD: Here to talk about it is mortgage industry expert Dale Vermillion. He is the author of Navigating the Mortgage Maze: The Simple Truth About Financing Your Home.

Dale, good morning!

VERMILLION: Good morning.

REICHARD: Well, as we mentioned, we’ve seen record growth in home prices. Is that surge beginning to level off at all? Where does the market stand right now ?

VERMILLION: You know, we believe it is. It’s interesting because if you look at the experts they all have different opinions. Zillow predicted a 13.6% increase in values, Goldman Sachs at 16%. Yet CoreLogic, who does this every single day says 2.2%. Fact of the matter is what we're seeing right now is interest rates rise, and when rates rise, you start to see a tapering off a little bit of property value increases. Not to mention the fact that we're getting to the end of the year when it starts to slow down a little bit before we get into the spring market. So we are starting to see a little bit of tapering on that. And we anticipate seeing a little bit more in 2022, probably, because affordability issues are tough in some of the markets around the country.

REICHARD: And it’s not just buying a home that’s more expensive. Prices have gone up for renters as well, right?

VERMILLION: For everything. It’s exponentially grown over the last year. We've never seen it. I've been 40 years in the mortgage market, never seen anything like this before that would rival it. And it's really because of supply and demand at the end of the day. We've got so much demand. The millennial generation is the largest generation of human beings buying homes that we've ever seen, bigger than the baby boomers, which really, you know, kind of developed the real estate market we have today. That's the challenge right there and the problem is we don't have enough new construction to keep up. We’ve got 700,000 units under construction right now and the problem is supply chain issues. So, you know, they're building houses as fast as they can but we've got a lot of people looking for homes.

MR: Should we be worried about a repeat of 2008?

VERMILLION: No. We should not. 2008 was a very different kind of marketplace. That was really a credit quality issue. That was really a problem with lending to people that just didn't qualify in those days. That was the core of that problem. We did see a lot of the same kind of trends and property value increases, but it was a different market. We've got a more stable mortgage market today. What we are going to see is some flattening and property values in some areas. Those areas that are vacation areas where people can work from home and want to live, those are going to continue to go up pretty dramatically, I believe. So we're just going to see some pockets of the country that are going to flatten out, some that go down a little bit, others that will continue to rise. It's going to be more regional than national in 2022 versus 2008.

MR: The Federal Reserve has indicated that it will raise interest rates next year. How will that affect the housing market?

VERMILLION: Well, it’s going to affect it in a big way because they're going to—now they've kind of doubled down on that they're going to raise it three times. We think the Fed’s going to go to about 2.2% by the end of 2022 to 2023. That's a big jump. So when you start to see those rates rise, that is going to create a little bit of a slowdown in the property value increases. For consumers who are looking to refinance, obviously, that becomes a little bit more of a challenge. That's going to change that. In fact, the Mortgage Bankers Association is predicting almost a 70 percent drop in refinances next year. But purchases are actually targeted to grow by about nine percent. So we think we're going to continue to see more purchases next year than we even saw this year.

MR: So what does all of this mean for a potential home buyer or seller? If someone is thinking about selling their home, should they do it now and strike while the iron is hot? And should a home buyer wait for the market to cool? What do you think?

VERMILLION: I think they can wait until after the first of the year for it to cool off a little bit. But, look, here's the bottom line, you've got to always compare what it's going to cost you to rent to what it's going to cost you to own a home. And owning a home is generally going to be the better choice for you because of tax deduction benefits, asset growth, wealth building, all of the reasons we know of that make homeownership the American dream. The key here is: be educated. Don't go into a transaction to buy a home without doing your homework. Have all of your information together. Be prepared when you talk to the lender. Know what your credit scores are, make sure you get the best credit score you can, have a good down payment. And most importantly two things, two rules you never break: Do a budget before you buy anything. Don't just rely on what the lender will approve you for. But do a budget for what you can afford so you don't over buy. And make sure you hold back money for reserves when you buy. And if you can buy cheaper than you can rent or for the same you can rent, buy the house. That's the thing to do.

MR: Sound advice. Dale Vermillion has been our guest today. Dale, thanks so much and Merry Christmas.

VERMILLION: Mary, same to you. Appreciate you and God bless.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.