Are We Heading for a Housing Bubble?

If there was a poll on what question I am most being asked by clients it would be, “Are we in a housing bubble?”

So here is the quick rundown and the main reasons many speculate we are not!

Keep in mind, that historically speaking, housing bubbles are quite rare but may feel common, since we all lived through one—but the 2007 crisis happened mainly due to a series of decisions and events that would not occur today.

LENDING STANDARDS—Regulations such as Dodd-Frank have changed the laws of the land and have assisted in curtailing lending fraud while maintaining a healthy housing market. The buyers are also different.  The median FICO for current loans is 42 points hire (Urban Institute) and buyers today are extremely qualified comparatively.

MORTGAGE RATES- In the 2000s adjustable-rate mortgages were much more popular and tempted many homeowners.  Rising interest rates also discourage investors from entering the market keeping the likely hood low of a bubble bursting. 

EQUITY-  In the early 2000’s many consumers were buying homes with almost no equity and buyers had to bring little to the table to prove they could afford the homes.  With so little equity, consumers couldn’t sell their homes without going into debt. This ultimately made foreclosure the only option. Today, the average homeowner has over $150,000 worth of equity in their home – an all-time high, which is good.

 SUPPLY –  Prior to the crash in 2007, new home construction outpaced demand and contributed to home prices dropping.  However, new home construction is now lagging behind.  Increased building regulations, rising prices in materials, and lack of supply have all led to a HIGH demand.  With homes costing more, this incentivizes builders to focus more on luxury homes rather than modest starter homes.

In our own backyard, can you think of the last time you saw a MODEST home development pop up? So here we are left with a low supply of homes at the average price point. The homes that are left to choose from tend to be substandard, outdated, and often unappealing to the majority of buyers.

Demand is high and will likely remain high! Millennials and Gen Z are now making up a huge chunk of the main shoppers.  Throw in high rent and you see the reason for demand!  With or without inflation...many do not forecast a bursting bubble. 

While real estate can be negatively affected by inflation in the form of higher prices, it can also protect you from its effects.

As home prices go up over time, you're lowering the loan-to-value of your debt. You're simultaneously increasing your equity, but your fixed-rate mortgage payments will stay the same.

In closing…..IF YOU plan on buying a home.  We need to talk!  You shouldn’t delay! This market is simply different and demand is here!  Let’s house hunt for your deal and get you into building some equity!