Is there a real estate bubble coming?
I am not an economist – nor do I play one on TV, and I don't have a crystal ball as to what will happen in the world economy – but I am pretty tied into what it going on in the real estate industry and mortgage rates, and when people ask me about if we are heading into a real estate bubble or if there is a housing crash similar to 2008 coming, I say with pretty strong certainty – no.
HOUSING PRICES HAVE SOARED
There are fundamental differences between today’s market and what happened almost 15 years ago now. Yes, while housing pricing have increased to the point of lunacy over the last 2 years, the underlying causes are different:
Fifteen years ago, appraisers, lenders, and credit agencies were turning a blind eye to responsible lending and that caused many houses that were overpriced to be sold to people who simply could not afford them and so, in the end, they defaulted which caused problems we dare not repeat. (For a great movie on this, look up “The Big Short” with Steve Carrell and Christian Bale.)
LEARNING AND MOVING FORWARD
When the housing market collapse happened 12 years ago, the vast majority of small contractors went out of business. This caused the number of houses being built in the US to go from an average of 1M per year, to 250K per year – for about 8 years.
Now, 10 years later, we are building more houses again but the material costs have risen. We also went through a period where new builds failed to keep up with the population growth. Believe it or not, we have the largest generation in history (Millenials) raising families by age 30 and there’s just not enough houses to go around – and that’s the reason why housing prices are rising today.
SUPPLY AND DEMAND
We have roughly 6M more buyers than sellers today. Interest rates are going up which will curb demand but erase demand. The increase in interest rates should stabilize housing prices by taking the weaker buyers out of the market, but I don’t think the prices will go down. Instead, we have the basic law of supply and demand: Too many buyers and too few homes to choose from.
If you would like to sit down with me and go over your current mortgage situation, let’s do. I am just down Main Street and there’s nothing I like to do better than educate clients so they make the best decision for their family.