3 Reasons We Absolutely Are Not in a Housing Bubble

With home values forecasted to appreciate by about 5% this year it has some people concerned that we may be in another housing bubble and that that bubble is about to burst. Unlike what we experienced a little over a decade ago, there are multiple reasons why this market is completely different. So, don’t stress, we are here to ease your mind!

First big difference is the housing supply is extremely sparse, which means if supply is low and demand is high, prices naturally increase. In real estate we measure supply and demand based on what we call “months’ supply of inventory.” What that is based on is the number of current homes for sale compared to the number of buyers that are on the market. Last time we saw a housing bubble the months’ supply of inventory increase from 5 to 11 months and continued to stay high and at the same time home values continued to rise.

This time around months’ inventory has been under 5 months for the last three years and it currently stands at 1.9 months which is an historic low.

Second difference is that this time the housing demand is real. During the housing boom in the 2000’s people got caught up in the frenzy that the mortgage industry created in which they made mortgage money available to pretty much anyone, so in turn houses were being bought up like crazy. This time the demand is actually based on a need. Millennials, which are the largest generation in the country have reached the age that they are getting married and having children, which in turn are two big factors for homeownership. The health crisis has also created a big demand for a new home situation. Add all this together with historically low mortgage rates, boom you have a very real demand that doesn’t seem to be going away anytime soon.

Lastly households actually have plenty of equity. During the housing boom existing homeowners started to use their homes like they were ATM machines by taking cash-out refinances that left many homeowners with little to no equity in their homes. Since then, it seems that the banks and homeowners have learned a lesson from the housing crisis, couple that a conservative approach it has created levels of equity that we have never seen before.

So to sum it up, housing supply is at an historic low, the demand is very real, and even if there is a drop in housing prices homeowners have enough equity to be able to make it through!