Home values have been skyrocketing for months now and experts don’t predict them stopping this year. Of course, ever since the housing market crash in 2008, people have been on high alert looking for signs that we’re in another housing bubble. Sky-high demand and low-interest rates are making some people concerned that we’re headed for another situation like 2008. However, this market is totally different. Here’s why we are not in a housing bubble right now.
1. Limited Supply
While home prices have been increasing rapidly, this is natural. Increased demand coupled with a low supply of any item will lead to higher prices. This time, it just happens to be with houses. In Long Beach, we currently have less than a two month supply of homes available. This puts us squarely in a seller’s market. Anything less than a six-month supply of homes is considered a seller’s market and leads to higher home prices.
Back in 2006-2008, the housing inventory fluctuated between a five-month and eleven month supply. Yet, home prices continued to go up and this is one of the factors that lead to the housing bubble popping.
Related Article: Are We Headed For A Lot Of Foreclosures In 2021?
2. This Housing Demand is Not Fabricated
During the 2008 housing crisis, there was a high demand for homes and the mortgage industry offered easy access to loans with little money down and incredibly flexible underwriting guidelines, including “stated income” and “low doc” mortgages. The Mortgage Credit Availability Index measures how hard (or easy) it is to receive a loan. The lower the number, the harder it is to get a loan. In 2006, the number was at an all-time high of 868, meaning it was exceptionally easy to get a loan. Today, it is around 122.5.
The current demand for homes is actually real. Millennials are currently the largest generation in the US and they have finally come of age. As they start marrying and have children, their desire for homes is of course going to increase. Furthermore, the current pandemic has made people reevaluate their needs. Many more consumers now want a single-family home with outdoor space and more room to spread out. These two factors plus the historically low-interest rates means homeownership is a sound, financially-wise decision. This is a far cry from the over-inflated demand that led to the housing bubble in the mid-2000s.
3. Equity Equity Equity
Equity is a huge factor in why we are not in a housing bubble right now. From 2005 through 2007, Americans pulled out $824 billion dollars in equity. This meant that when housing prices began to drop, homeowners realized they owed more than their homes were worth. This led to defaulting on their payments and a tsunami of foreclosures.
It seems that homeowners have learned their lesson though. The rate of cash-out refinances is low and 38% of owner-occupied housing units have no mortgage. Also, according to ATTOM Data Solutions’ fourth-quarter 2020 US Home Equity Report:
17.8 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value…The count of equity-rich properties in the fourth quarter of 2020 represented 30.2 percent, or about one in three, of the 59 million mortgaged homes in the United States.
We Are NOT In A Housing Bubble
If concern about a housing bubble has been on your list of worries, you can cross it out! We are not in a housing bubble. The factors above prove that the housing price gains we’re seeing are natural and nothing to be concerned about. If anything, the housing market is in the complete opposite situation it was in 2008.
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