Elon Musk is wrong about a housing-market crash
- Elon Musk tweeted that US home values are set to plummet.
- Selma Hepp, the chief economist at CoreLogic, said that's not going to happen.
Elon Musk, the world's richest person and TIME's 2021 person of the year, has voiced polarizing opinions on everything from artificial intelligence to political ideology.
On Monday, the billionaire — who has built a multi-million dollar portfolio of real estate properties — shared one of his most contentious opinions so far in 2023: "Commercial real estate is melting down fast. Home values next," the Tesla and SpaceX chief tweeted to his millions of followers.
At a time when high interest rates and home prices have put the US real estate market into a slump, Musk's tweet implies that homebuying activity could slow so severely that homeowners and their lenders may stand to lose thousands of dollars on their properties.
Musk's outlook echoes the opinions of experts like Ray Farris, the chief US economist at Credit Suisse, and Ian Shepherdson, the chief economist and founder of Pantheon Macroeconomics — who called the 2008 housing crisis — who projected double-digit national home price declines in 2023.
But was Musk's remark based in reality? No, according to Selma Hepp, the chief economist at CoreLogic, a property data firm with more than 5,000 employees and clients including Freddie Mac, one of the largest providers of mortgage finance in the country. She said the housing naysayers are wrong and that the housing market is instead heading towards a recovery.
"It is my take that we are not seeing signs of potential crash at all," Hepp told Insider. "If anything, home prices are growing again and at a much faster pace than anticipated."
Indeed, the S&P CoreLogic Case-Shiller US National Home Price Index showed a monthly gain of 1.3% in March, an acceleration from the 0.3% increase a month earlier. On an annual basis, US home prices increased 0.7%.
CoreLogic found that homebuying activity in March was the hottest on the West Coast, and that San Diego and San Francisco — one of a few US cities that did suffer double-digit price drops — posted the strongest monthly price gains.
Hepp attributes the real estate market's rebound to an imbalance of housing supply and demand that has heightened competition amongst borrowers.
"The spring home buying season is characterized by stronger return of buyers than sellers, which created another competitive market environment, and one in which the very meager inventory of existing homes is putting buyers in a position of having to pay over the asking price," she said. This has driven spring price gains well beyond what is traditionally seen during this period, she added.
Indeed, as higher mortgage rates have discouraged homeowners happy with their low, locked-in rates, from moving, and as new supply lags demand, homebuyers are again resorting to bidding wars to get what they want.
In March, for example, more than 300 people lined up to tour a 1,168-square-foot home in Durham, Connecticut, a small town of just over 7,000 people located two-hours from Boston and New York City. In markets like Durham's, increased competition is keeping home prices elevated against the expectations of the tech mogul and other experts. According to data from Redfin, during March, 33% of homes that were sold in the city went above the asking price.
Hepp said that bidding wars could become only more common as the year progresses.
"We've seen an increase in biddings," she said. "In our data, about 32% of homes sold over the asking price in April. That means we've probably seen the extent of home price declines."