Two Reasons Why Today’s Housing Market Isn’t a Bubble

By
Real Estate Broker/Owner with The Real Estate Agency (Office License: 265417) 317824

 

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 below):

Two Reasons Why Today’s Housing Market Isn’t a Bubble | Keeping Current Matters

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.

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 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 below):

Two Reasons Why Today’s Housing Market Isn’t a Bubble | Keeping Current Matters

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.”

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. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the years after:

Two Reasons Why Today’s Housing Market Isn’t a Bubble | Keeping Current Matters

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, connect with a local real estate professional to discuss why today’s housing market is nothing like 2008.

Source: Keeping Current Matters | The KCM Crew 06272022

Comments (5)

Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

I do not believe it's a bubble, just a lot of people that were staring in rentals deciding that space is safer and healthier

Jun 27, 2022 03:01 PM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

It doesn't matter what the the experts think or say. No one knows. In addition, there are negative forces on the market and on the economy that didn't exist in the 2008 crash. We have runaway inflation caused by the administration's war on oil. Mismanagement of the supply chain is also contributing to shortages and rising prices. The Feds are raising interest rates to fight inflation that has been self-inflicted by bad policy. Changes to the war on oil policy would lower inflation without destroying the economy like the rising interest rates will.

 

Gas prices and the highest inflation in decades are snatching many hundreds of dollars each month out of the pockets of Americans. Many have overpaid for homes in the last two years and their mortgage payment budget did not factor in doubling and maybe tripling of gas prices, did not factor in rampant inflation, and did not factor in rapid increase in interest rates that will reduce the buying power of home buyers in case the sellers have to sell.

 

The housing market is more fragile than the media wants to report.

Jun 27, 2022 07:42 PM
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

The market is always changing right?!?  I doubt house prices will fall dramatically. Just yesterday I read in the WSJ how some renters are offering OVER the listed rent price bc there's a shortage of rental houses as well.

Jun 28, 2022 07:18 AM
Paddy Deighan MBA JD PhD
http://irstaxdebt.pro - Vail, CO
Paddy Deighan J.D. Ph.D

nice to hear some positive news for a change...I recall financial guru/clown Doug Casey stating in 1989 that real estate was a bubble and then when it crashed in 2008-09 he was proud of himself for the prediction....nice work Doug..took 20 years to come true

Jun 28, 2022 08:42 PM
Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Great information.   Thanks for sharing and enjoy your day!

Jul 19, 2022 06:40 AM