A ‘massive housing bubble has developed’ in the U.S. South, analyst warns

America’s “massive housing bubble” is about to pop, beginning in the South, according to Nick Gerli, the CEO of real estate data provider Reventure Consulting.

Gerli's prediction rests on a record surge in the number of new homes for sale in the Southern Region, which includes states like Florida, Texas, Georgia, and Tennessee.

The number of new homes for sale in this region has surged to 299,000, which is “the highest level of all-time”—even higher than the previous peak in August 2006.

“Many people want you to think “this time is different” in the housing market. It isn’t,” Gerli said as he drew parallels between the current housing market and the one that peaked before the 2008 financial crisis.

“The builders in the South have gone absolutely crazy, and continue to pull single-family permits at an extremely high rate,” Gerli explained.

“Many are adopting a mid-2000s perspective of “build it, and they will come.” However, demand has dropped precipitously, with new home sales in the South falling below pre-pandemic levels,” he said.

Due to falling demand, the “months of supply” for new homes has spiked to nearly nine months, which is a record high for the South.

New properties flood southern markets as affordability challenges grow

It’s not the first time analysts have warned about the bursting of the housing bubble in the South.

Data from ICE Mortgage Monitor shows that former remote work hot spots in Florida and Texas have seen a surge in housing inventory, largely due to the high cost of homeownership.

According to the Census Bureau, the average new home sold in May was valued at $417,400.

Considering that 30-year mortgage rates still hover near 7%, even a 20% down payment would leave homebuyers with large monthly payments that they can’t afford.

Although analysts at Redfin and Ned Davis Research continue to warn of a housing shortage at the national level, regional trends vary significantly, as evident in the South.

It should also be noted that much of the discussion about housing shortages refers to the shortage of affordable homes rather than an absolute lack of supply.

According to a new report by the University of Kansas and The New School, “Affordability challenges stem more from the collision of low incomes with high housing prices, rather than from any absolute shortage of homes.”

As Lance Lambert, co-founder of housing data provider ResiClub, wrote, “Housing affordability has deteriorated so much that many buyers and sellers alike have pulled back from the market.”