Across the American South, “For Sale” signs are sprouting like springtime blooms, signaling a surge in new home construction that’s colliding head-on with cooling demand.
This, according to one real estate executive, has inflated a “massive housing bubble” that’s on the verge of bursting.
Nick Gerli, CEO of Reventure Consulting, recently sounded the alarm 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, built on Reventure’s proprietary data, paints a picture of a region wrestling with the aftermath of pandemic-driven exuberance.
He asserts that home prices in states like Tennessee, Georgia, and Florida are now 30% overvalued compared to historical norms. This overvaluation, coupled with a sharp rise in inventory, underpins his bubble theory.
During the pandemic, the South experienced an influx of remote workers seeking more space and lower living costs. Builders responded with a construction blitz, but as the pandemic subsided, so did demand.
“The ‘Months of Supply’ on builder lots in the South has spiked to almost nine months,” Gerli noted, approaching levels last seen just before the 2008 housing crash.
This metric measures how long it would take to sell all available homes at the current sales rate.
Adding to the anxiety, Gerli highlighted that new home sales in the South have dipped below pre-pandemic levels despite the construction boom.
Active inventory is climbing, and price cuts are spreading in states like Florida and Texas, with similar trends in Tennessee, Georgia, and South Carolina.
Yet, not all experts echo Gerli’s dire forecast. Mark Fleming, chief economist at First American Financial Corporation, offers a more balanced view, arguing that a significant price drop is unlikely due to a fundamental supply-demand imbalance.
“There’s just generally not enough supply,” Fleming told Bankrate. “There are more people than housing inventory. It’s Econ 101.”
Dave Liniger, founder of RE/MAX, envisions another boom when mortgage rates eventually decline, driven by pent-up demand from a generation of potential buyers.
While markets like Austin, Texas, are seeing price declines, Lawrence Yun of the National Association of Realtors (NAR) sees little chance of a broad price drop, stating, “Prices will remain firm and will not decline on a national level.”
Despite rising inventory and price cuts in the South, prices in many areas remain near record highs, suggesting a market in flux rather than free fall.
Gerli, however, remains adamant. He points to speculative buying during the pandemic, especially in builder communities, as a factor that could amplify any downturn.
“Now, many of those investors are being forced to sell,” he warned.
Gerli’s outlook suggests a potential recession. With much of the South’s economy hinging on construction, remote work, and tourism, an economic downturn could disproportionately impact the region’s housing market.
Several cities have already seen home values drop. San Antonio leads with a 4.6% year-over-year decrease, lowering the median home price from $320,500 in Q1 2023 to $305,800 in Q1 2024, according to GoBankingRates.
Cape Coral, Florida, followed with a 4.4% decline, from $434,000 to $415,000. Panama City, Florida, saw a 3.8% dip, while Baton Rouge and Shreveport in Louisiana experienced more modest decreases 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%).
The South’s housing market is a tale of contrasts—booming constructions and waning demands, sky-high prices and creeping declines. The coming months will reveal whether the bubble bursts or merely deflates.
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