Two Reasons Why Today’s Housing Market Isn’t a 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):

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’re concerned a crash may be coming, here’s a deep dive into those two key factors that should help ease your concerns.

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 causes 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 which were short sales and foreclosures), and that caused prices to tumble. Today, there’s still a shortage of inventory, which is causing ongoing home price appreciation (see graph ):

Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s 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.”

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. Here’s 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:

This 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

A majority of experts agree we’re 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.

Top Sales for July 2022 in Coastal Boca Raton

Our top three sales in the month of July were all located in Royal Palm Yacht and Country Club, which accounted for 10% of the available inventory there. The top sale was an original build-era (1971) waterfront home. None of the homes on the list this month were new construction, with the newest sale being ALINA #312 which last sold from the developer in May 2021. The average DOM (days on market) was only 40 days, which is about a month shorter than average in Boca Raton. July also saw a rarely available condo at Presidential Place trade for $5M, six months after the last sale closed in December of 2020, as well as two other oceanfront condos at Excelsior. Penthouse 11 at 200 East closed this month at $3,020,000, far above the average price for a luxury condo in Boca Raton of $2,279,563, but under the average price per sqft of $798, coming in at $727.01.

360 E Alexander Palm Road
5  beds |  5.5 baths | 7,800 sq. ft.
$10,500,000

169 W Coconut Palm Road
5  beds |  6.5 baths | 6,105 sq. ft.
$8,200,000

368 S Silver Palm Road
5  beds |  7 baths | 5,957 sq. ft.
$7,850,000

800 S Ocean Boulevard 203
4  beds |  4.5 baths | 4,747 sq. ft.
$5,000,000

400 S Ocean Boulevard R-17
3  beds |  4.5 baths | 3,687 sq. ft.
$4,500,000

299 NE 6th Street
5  beds |  5 baths | 4,898 sq. ft.
$4,000,000

400 S Ocean Boulevard 25
3  beds |  2.5 baths | 3,446 sq. ft.
$4,000,000

820 NE Boca Bay Colony Drive
5  beds |  4.5 baths | 3,795 sq. ft.
$3,850,000

200 E Palmetto Park Rd Ph-11
3  beds |  3.5 baths | 4,154 sq. ft.
$3,020,000

511 Golden Harbour Drive
3  beds |  3.5 baths | 2,798 sq. ft.
$2,950,000

200 SE Mizner Boulevard 312
3  beds |  3.5 baths | 2,757 sq. ft.
$2,850,000

What Does the Rest of the Year Hold for the Housing Market?

The Number of Homes Available for Sale Is Likely To Grow

There are early signs housing inventory is starting to grow and experts say that should continue in the months ahead. According to Danielle Hale, Chief Economist at realtor.com, “The gap between this year’s homes for sale and last year’s is one-fifth the size that it was at the beginning of the year. The catch-up is likely to continue, . . . This growth will mean more options for shoppers than they’ve had in a while, even though inventory continues to lag pre-pandemic normal.”

• As a buyer, having more options is welcome news. Just remember, the housing supply is still low, so be ready to act fast and put in your best offer upfront.

• As a seller, your house may soon face more competition when other sellers list their homes. But the good news is if you’re also buying your next home, having more options to choose from should make that move-up process easier.

Mortgage Rates Will Likely Continue To Respond to Inflationary Pressures

Experts also agree inflation should continue to drive up mortgage rates, albeit more moderately. Odeta Kushi, Deputy Chief Economist at First American, says, “… ongoing inflationary pressure remains likely to push mortgage rates even higher in the months to come.”  

• As a buyer, work with trusted real estate professionals, including your lender, so you can learn how rising mortgage rate environments impact your purchasing power. It may make sense to buy now before it costs more to do so, if you’re ready.

• As a seller, rising mortgage rates are motivating some homeowners to make a move up sooner rather than later. If you’re planning to buy your next home, talk to a trusted real estate advisor to decide how to time your move.

Home Prices Are Projected To Continue To Climb

Home prices are forecast to keep appreciating because there are still fewer homes for sale than there are buyers in the market. That said, experts agree the pace of that appreciation should moderate – but home prices won’t fall. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains, “Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022. . . Given the extremely low inventory, we’re unlikely to see price declines, but appreciation should slow in the coming months.” 

• As a buyer, continued home price appreciation means it’ll cost you more to buy the longer you wait. But it also gives you peace of mind that, once you do buy a home, it will likely grow in value. That makes it historically a good investment and a strong hedge against inflation.

• As a seller, price appreciation is great news for the value of your home. Again, lean on a professional to strike the right balance of the best conditions possible for both selling your house and buying your next one.

Bottom Line

Whether you’re a home buyer or seller, you need to know what’s happening in the housing market, so you can make the most informed decision possible. Let’s connect to discuss your goals and what lies ahead, so you can pick your best time to make a move.