Gary Shilling: Don’t Expect the U.S. Housing Boom to Last

The single-family housing market is in a frenzy, if not a bubble, because of the COVID-19 pandemic, but the boom may not last, says investment advisor Gary Shilling. 

The founder of A. Gary Shilling & Co. explains in his latest Insight report that single-family homes in suburbs and rural areas have become a safe haven for people fleeing “densely populated apartment-dominated cities” during the pandemic. 

These homes provide not just shelter from the storm but also more living space as many people continue to work from home and their children continue to learn remotely. Extremely low interest rates — just over 3% for a 30-year fixed mortgage as of Oct. 1 — are also supporting the single-family housing market.

The median home sales price jumped 12% between early January and early September to $312,831, according to Redfin and The Wall Street Journal, and existing-home sales rose for three consecutive months through August, including a 25% jump in July, writes Shilling. The strong demand caused inventories to nosedive 26% from a year ago to a 2.8-month supply in August.

In contrast, apartment vacancies rose and their rents fell, down 15% to 20% in once-booming areas like New York and San Francisco, and condominium prices, according to Redfin, fell 14% in June from a year earlier, writes Shilling. 

This divergence is unusual in the real estate market, according to Shilling. “In the past, most real estate sectors moved together and were propelled by economic growth and low financing costs,” he writes. “But with the corona crisis, they’re going separate ways in what’s become a zero-sum game.”

In addition to rental apartments and condominiums, commercial real estate like shopping malls, which were under pressure before the pandemic, and office buildings are under stress. Just 10% of Manhattan’s office workers had returned to their offices as of Sept. 8, and office occupancy in San Francisco is only slightly higher, about 15%, writes Shilling.