Experts Show Why We’re Not in a Housing Bubble

You may be reading headlines and hearing talk about a potential housing bubble or a crash, but it’s important to understand that the data and expert opinions tell a different story. A recent survey from Pulsenomics asked over one hundred housing market experts and real estate economists if they believe the housing market is in a bubble. The results indicate most experts don’t think that’s the case (see graph below):

As the graph shows, a strong majority (60%) said the real estate market is not currently in a bubble. In the same survey, experts give the following reasons why this isn’t like 2008:

• The recent growth in home prices is because of demographics and low inventory
• Credit risks are low because underwriting and lending standards are sound

If you are concerned that a crash may be coming, here is a deep dive into those two key factors that should help ease your concerns.

1. Low Housing Inventory Is Causing Home Prices To Rise

The supply of homes available for sale needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will cause prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.

As the graph below shows, there were too many homes for sale from 2007 to 2010 (many of them were short sales and foreclosures), and that caused prices to tumble. Today, there is still a shortage of inventory, which is causing ongoing home price appreciation (see graph below):

Inventory is nothing like the last time. Prices are rising because there is a healthy demand for homeownership while at the same time there is a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist at First American, explains:

“The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.”

2. Mortgage Lending Standards Today Are Nothing Like the Last Time

During the housing bubble, it was much easier to get a mortgage than it is today. Below is a graph showing the mortgage volume issued to purchasers with a credit score of less than 620 during the housing boom, and the subsequent volume in the years after:

The above graph helps show one element of why mortgage standards are nothing like they were the last time. Purchasers who acquired a mortgage over the last decade are much more qualified than they were in the years leading up to the crash. Realtor.com notes:

“. . . Lenders are giving mortgages only to the most qualified borrowers. These buyers are less likely to wind up in foreclosure.”

BOTTOM LINE

Most experts agree that we are not in a housing bubble. That’s because home price growth is backed by strong housing market fundamentals and lending standards are much tighter today. If you have questions, let’s connect to discuss why today’s housing market is nothing like 2008.

Remember that we can also do financing, and we have access to several banks that will provide many types of loans for you.

We can prepare the Pre-Qualification letter or obtain the Pre-Approval letter directly from the bank, facilitating your purchasing process.

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