Is there a Housing Bubble?
After speaking with multiple clients lately, many keep asking if we believe we're in a housing bubble. The way the market bas been going lately, that feeling is understandable as home price appreciation is still in the double digits. However, this current market is considerably different than it was during the housing crash 15 years ago.
Here are four key reasons why today is nothing like the last time.
Housing is Still Affordable, Compared to Last Bubble Burst.
Fifteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high, but wages have increased, and the mortgage rate is still well below 6%. That means the average purchaser today pays less of their monthly income toward their mortgage payment than they did back then.
Mortgage Standards Have Tightened Since the Last Circus.
During the housing bubble, it was much easier to get a mortgage than it is today. Mortgage standards are nothing like they were the last time. Purchasers that acquired a mortgage over the last decade are much more qualified.
In the Previous Crash, the Foreclosures were much higher.
Why are there so few foreclosures now? Today, homeowners are equity rich, not tapped out. In the run-up to the housing bubble, some homeowners were using their homes as personal ATM machines. Many immediately withdrew their equity once it built up, but owners have not been tapping into it like the last time.
We Don’t Have a Surplus of Homes on the Market – We Have a Shortage
The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more, is an overabundance and causes prices to depreciate. Anything less, is a shortage and will lead to continued price appreciation. Today, there’s a shortage of inventory, which is nothing like last time, and it's causing the acceleration in home values to continue. Prices are therefore rising because there’s a healthy demand for homeownership at the same time there’s a shortage of homes for sale.
Hopefully these statistics we have shared will shed some light on the differences in the current housing market and the last housing market crash. This may also have given you a little bit of peace, there are no guarantees in life other that Death and Taxes, but armed with facts you can live in less fear and that may help avoid irrational decisions.
If you ever have any questions or want a current market analysis of your home don't hesitate to reach out. I'm always happy to answer any questions.
