With today’s housing market conditions, the question comes up frequently whether or not we are in bubble. There are several indicators and comparable metrics that show that the market should continue to stay strong.
Loan originations are being made to those with high credit scores and sizable down payments which was the opposite of the subprime crisis. During quarantine there were people going through financial troubles. Although, there was also a large quantity of people that had nothing to do with their money but save it. No travel, dining or moving homes. This allowed people to save and wait out the pandemic for the right opportunity to buy.
The decrease in interest rates is another obvious indicator that has incentivized people to borrow. This has increased the demand for homes but the supply hasn’t been able to keep up. Many homeowners didn’t want to have strangers walking through their home with the risk of covid contamination. Also, the last housing bust caused homebuilders to slow down construction and it still hasn’t picked up to where it was in 2006.
One last indicator pointing to a healthy market is the average consumers financial picture. Falling rates, stimulus payments and some apprehension from the last crash has created stronger balance sheets. Debt service as a percent of disposable income has fallen from 13% in 2007 to around 9% in 2020-21. There is also a large increase in home equity in comparison to 2007. I’d love to hear what other people have to say about today’s booming market. There are several indicators I didn’t cover but the ones I did are easily comparable to the previous housing bubble.
The facts in this post came from an article on fortune.com: https://fortune.com/2021/04/16/are-we-in-a-housing-bubble-covid-real-estate-prices/
In my opinion home values will continue to rise along with rents until next Summer/Fall ( 2022) when desirable new construction adds to inventory and lumber prices are finally back to normal / semi normal. Part of being in the information age is everyone knows its a great time to buy with historic low interest rates, the economy over the past few years has enabled Americans to save a substantial amount of money to own their own home. People working through the pandemic got bonuses and stimulus money and if they lived in a city area where its fearful to raise a family with a deadly virus looming around threatening to kill everyone (whether you agree or disagree to how valid that is many people still have the fear mindset) has pushed them out to home ownership verse apartments especially if they can work virtual. NYC market got crushed everything stopped and prices declined as a result. People still aren't paying rent in some cases and I believe a lot of larger investors lost a good amount of money (not overall just on nonpaying tenants that should have paid but took advantage) in the short term. I don't foresee inventory appearing out of nowhere in the suburbs anytime soon alleviating this, and I do not think we will see a drastic rise in interest rates which ultimately determine how much house someone can afford. I think even some sellers will have some regret for selling so early as I believe we are not nearly at the height of the market yet.
I think the bottom line is people are being paid more from the warehouse entry level worker to the upper level manager in a corporation, interest rates are low, and single family homes simply weren't being built for a period of time out of pandemic fear bringing us to the current state. Until rates hit a solid 5+ percent and inventory comes back to the "normal" 6 months availability we won't even get back to a normal market let alone a bubble bursting.
@Dan M. you made a lot of great points. End of the day the supply needs to increase and rates need to rise a bit. Thanks for providing some deeper insight on this.
If it's not a bubble then it's a mountain. I'm questioning where the summit is.
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