No housing market can produce enough homes when homes are massively used as vacant investment speculations. This creates an artificial shortage.
By Wolf Richter for WOLF STREET.
That the housing market has gone nuts is now in the news on a daily basis with click-bait reports of silly bidding wars with ludicrous amounts paid over already high asking prices, powered by the new pandemic of FOMO – the fear of missing out. Bad deals are made in good times, as bankers say, and these are the best of times, powered by the Fed’s policies of moving heaven and earth to inflate every conceivable asset bubble.
One side effect of the combo of these surging home prices, still low mortgage rates, and FOMO is that people have bought new homes without putting their old and now vacant home on the market and with no intention of putting it on the market for now – and thereby they have bought a “second home” – which squeezes supply and heats up the frenzy further.
The share of purchase mortgage applications in February for second homes and investment properties has soared to 14.1% of total purchase mortgage applications, according to data by the Mortgage Bankers Association, cited and charted by the Wall Street Journal:
I have seen that people, eager to leave a big city, bought a home in a place where they always wanted to live, in the distant suburbs, or in vacation hotspots in the mountains or in coastal enclaves they’d fallen in love with, or wherever, and that,…