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Homebuyers’ pandemic-induced rush to the South could be a double-edged sword, according to Reventure Consulting CEO Nick Gerli’s viral thread on X, formerly known as Twitter.
Gerli said a massive housing bubble is forming in the South, thanks to homebuilders’ response to increased housing demand during the early months of the pandemic when homebuyers left the coasts for more affordable, less dense locales. Four years later, the South — which he classifies as the states below the Mason-Dixon Line stretching as far west as Texas — has a whopping 300,000 new homes for sale.
Nick Gerli | Credit: X
“This is the highest level of all time,” he said. “Even higher than the previous bubble peak in August 2006. Before the massive crash. Many people want you [to] think, ‘This time is different’ in the housing market. It isn’t.”
“The builders in the South have gone absolutely crazy and continue to pull single-family permits at an extremely high rate,” he added. “Many are adopting a mid-2000s perspective of ‘build it and they will come.’ However, the demand has dropped off precipitously with new home sales in the South falling down below pre-pandemic levels.”
Gerli, who is based in Nashville, said current inventory levels in the South represent nine months of supply at the current sales pace. Five to six months of supply is usually the benchmark for a healthy, balanced market. A higher number usually correlates to a buyer’s market; however, he said home prices have been stubborn, leaving homebuyers to sit on the sideline until they see more favorable price cuts.
“Active inventory on the Florida housing market, for instance, is currently spiking. As are price cuts. A key indicator of a market downturn,” he said. “The same thing is happening in Texas. And to a lesser extent in Tennessee, Georgia, and South Carolina (depending on the city).”
“But prices remain near record highs,” he added. “They’ve only come down by a little bit in most of these states, indicating that buyers are still priced out of the market and won’t be rushing back to buy until there’s more substantial relief on both home prices and mortgage rates.”
He said the bubble will burst if the Federal Reserve fails to keep the U.S. out of a recession, as much of the South’s economy relies on the health of hospitality, construction and remote work segments.
“The big wildcard here is the R-word: Recession,” he said. “If a recession rears its head, all bets are off in terms of the housing market in the South.”
“So much of the employment in the region is driven by construction, remote workers, and through tourism,” he added. “Any type of meaningful economic downturn will have an outsized impact on the Southern economy, which would have an outsized impact on the housing market.”
Gerli’s post drew more than 120,000 views and hundreds of comments from real estate professionals and consumers, many of whom said building trends in the South are the least of their worries. Several homebuyers from Florida said their most significant concern is home insurers’ mass exodus from the state amid worsening hurricane seasons.
“The number of new homes for sale in the Southern Region (FL, GA, TN, TX, etc.) has spiked up to nearly 300,000,” user @douglasritz said. “This time is different for Florida… this time, there will not be any buyers because you will not be able to obtain homeowners coverage.”
Meanwhile, others said oversupply is only part of the bubble equation while noting the 2007 housing crash was primarily due to unfettered subprime lending. “The 2007 crash wasn’t a result of oversupply,” @TwoWeeksLOL wrote. “It was a result of banks trading in bad debt and offering a shit ton of subprime loans, then the economy going into recession because of it.”
Still other commenters said the South’s building boom is needed, as evidenced by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development’s latest New Residential Construction report. The report revealed seasonally adjusted annual declines in building permits and housing starts — a key component to improving affordability for renters and homebuyers.
Danielle Hale
“This number should be even higher,” wrote @BlackLabelAdvsr. “We need more homes built to reduce housing costs!”
Realtor.com Chief Economist Danielle Hale attempted to cut through the noise with a statement to Newsweek, the first publication to write about Gerli’s viral post. Hale said the South has “greater availability” than other regions and will continue to draw more homebuyer interest, meaning chances for a housing bubble are slim.
“In our data, it is clear that the southern markets are the most normalized in Austin and San Antonio, for example, there are more homes now for sale than there were before the pandemic,” she said. “So there is greater availability in the South and we are seeing that affect pricing.”
“[The South] has also attracted a lot of households from other regions of the country because homes there remain affordable,” she added. “My expectation is that it will continue to draw in people and that its relative affordability will continue to be an advantage. So I don’t think we’re going to see a crash, but it is the case that inventory of homes for sale are less scarce in the South now than they have been over the past few years.”
