The "warning signs" look all too familiar.

Escalating home prices have both buyers & sellers worried that the market is just “too good to be true,” and the ultimate question is circulating: “Are we in a housing bubble?” Let’s tackle this important question by taking a look at three pertinent factors. 

#1 Housing Supply

This past year, home prices have appreciated rapidly causing worry for buyers and sellers that home prices are too high and that depreciation is likely to follow.

Unlike the Housing Bubble years of the mid-2000s, the major factor driving up home values is that we are also in a dire inventory shortage. In 2008, we had 13 1/2 months of inventory, today we have less than a month's worth, a historically low amount. 

Throwing it back to your high school economics class, the biggest driver of price appreciation is a simple case of supply and demand, hence what we’re seeing in the market today

#2 Housing Demand

If you remember the housing boom of the mid-2000s, you know how crazy that time was in real estate.

Robert Schiller summed it up in one phrase, irrational exuberance. The frenzy that in part caused the market collapse was fueled not by tactful, financial decisions but a country-wide case of FOMO (fear of missing out). The mortgage industry fed into the frenzy, making it easy for people to obtain home loans much higher than they could afford. Today’s real estate demand, however, is a very real thing.

Millennials are hitting the market en masse and the health crisis is causing homeowners to re-evaluate whether their current home meets their needs. 

These two big factors, coupled with historically low mortgage rates, make purchasing a home today a good financial decision. So, not only is the demand very real, but it’s also very smart.

#3 Equity 

Following the housing and economic crash of 2008, economists, financiers, and real estate industry experts have combed through data to figure out why the entire system crumbled the way it did. Most will agree that one of the biggest pieces of that catastrophic equation came down to this: equity. Or in reality, a lack of it.

The mid-2000s saw a massive wave of homeowners cashing out the equity in their homes. In short, they were using their homes like ATMs to afford some of the finer things in life.

Today is a much different equity picture. More than 38% of homeowners have paid off their mortgage “free and clear,” and another 18.7% have paid off over 50% of their mortgage. This positive equity perspective puts the current housing market in a much stronger place,  stabilizing home values across the U.S.

 The Bottom Line

The most important role I have is to be able to educate my clients … analyzing data and insights, getting all sides of a story, and communicating that with my clients so they can make the best real estate decision. Knowledge is the most powerful tool a realtor can possess.  

If you want the real deal, reach out to me whether it’s for advice, direction, or just general questions. I am here to educate and navigate, not speculate and fabricate!

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