A 'Massive' Bubble In The Housing Market Has Developed, And It 'Is About To Pop,' Real Estate Executive Says

Throughout much of the American South, "For Sale" signs are becoming common as a surge in new home construction has collided with cooling demand, creating what one real estate executive calls a "massive housing bubble" on the brink of bursting.

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Nick Gerli, CEO of Reventure Consulting, raised eyebrows this week with a warning on X, formerly Twitter. "The number of new homes for sale in the Southern Region has spiked up to nearly 300,000," he wrote, citing data from the U.S. Census Bureau. "This is the highest level of all time — even higher than the previous bubble peak in August 2006."

Gerli’s analysis, based on Reventure’s proprietary data, points to a region grappling with the aftermath of pandemic-era exuberance. He claims home prices in Tennessee, Georgia, and Florida are 30% overvalued compared to their long-term norms. That overvaluation and a sharp increase in inventory form the basis of his bubble theory.

During the pandemic, the South saw an influx of remote workers seeking more space and lower costs. Builders responded with a flurry of new construction, but as the pandemic waned, so did demand.

According to Gerli, the result is a glut of inventory that’s pushing the market to a tipping point. "The ‘Months of Supply’ on builder lots in the South has spiked to almost nine months," he noted, approaching levels last seen just before the 2008 housing crash. The months of supply metric indicates how long it would take to sell all available homes at the current sales rate.

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Adding to the concern, Gerli said that new home sales in the South have fallen below pre-pandemic levels despite the surge in construction. He also mentioned that active inventory is spiking and price cuts are increasing in Florida and Texas, with similar trends emerging in Tennessee, Georgia, and South Carolina.

However, not all housing experts share Gerli’s apocalyptic vision. Mark Fleming, chief economist at First American Financial Corporation, offers a more tempered perspective, saying that a meaningful price decline is unlikely due to the fundamental imbalance between supply and demand. "There’s just generally not enough supply," Fleming explained to Bankrate. "There are more people than housing inventory. It’s Econ 101."

Dave Liniger, founder of real estate brokerage RE/MAX, points to the potential for another boom cycle when mortgage rates eventually decline, citing pent-up demand from an entire generation of potential buyers.

While some previously hot markets like Austin, Texas, are seeing price declines, Lawrence Yun of the National Association of Realtors (NAR) sees little chance of falling prices on a broader scale, noting that "Prices will remain firm and will not decline on a national level." 

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While inventory levels and price cuts are rising in Southern states like Florida and Texas, prices in many areas remain near record highs, suggesting a market in flux rather than free fall.

Yet Gerli insists the writing is on the wall. He points to speculative buying during the pandemic, particularly in builder communities, as a factor that could exacerbate any downturn. "Now, many of those investors are being forced to sell," he warned.

Gerli’s analysis suggests a potential recession. With much of the South’s economy driven by construction, remote work, and tourism, an economic downturn could outsize the region’s housing market.

Several cities have already seen home values plummet. According to GoBankingRates, San Antonio leads the decline with a 4.6% year-over-year decrease, bringing the median home price down from $320,500 in Q1 2023 to $305,800 in Q1 2024.

Cape Coral, Florida, followed with a 4.4% decrease, from $434,000 to $415,000. Panama City, Florida, saw a 3.8% drop, while Baton Rouge, Louisiana, and Shreveport, Louisiana, saw more modest declines of 1.1% and 0.9%, respectively.

Other southern cities seeing price reductions include Myrtle Beach, South Carolina (-0.6%), Austin, Texas (-0.3%), and Crestview, Florida (-0.2%). 

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