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Will the bubble pop? Here's the data that says: Probably Not

By
Mortgage and Lending with CMG Home Loans NMLS 248937

 

Let me know if you have heard this before (Or maybe you thought it yourself?):

"I am going to wait to buy a home until prices come down."

I was a little scared at the beginning of this market myself since I was both a buyer and a seller a few years ago and had flashes of the bubble pop.  So I went and did some research on my own before diving feet first. Here is some up to date data that helped me sleep at night. 

(Warning: My economics degree sneaks out occasionally and chewing on data can be fun...)

We first have to look at population and birth rates.  Here is a fun chart from FRED:

Look at that STEEP drop in births from 1970-1973, Why are we looking back into the 1970s?  Because the average age of a first time buyer at the time of the bubble pop was 33yrs... and all of the sudden there were a LOT less of them when builders continued to build. Take a look at the next chart from MBS Highway that shows household formations and builder completions for the past 20yrs:

Leading up to the housing crisis you can see that builders were building more homes than we needed and continued to do so after that Pop.  

Now lets go back to the Birthrate chart.  Look at that steady increase in births that started in the mid 80s (current average age of first time buyer: 37). Today's first time buyer was typically born in 1987 and there are a lot of them with even more to come for the next few years.  Bouncing back to the second chart you can see that for the past 10yrs builders have NOT been able to keep up with demand and that is likely to continue for years to come.

Keep in mind that the builder completion number includes approximately 100k units every year to replace existing housing that is worn out, damaged or destroyed making the disparity even worse than that chart shows.

It isn't just births, we still have a lot of immigration in this great country of ours and that has gone up significantly in recent years, adding to that need for housing and is projected to climb well into the future.  Of course I have a chart for that:

 

Bottom line is simple supply and demand that is driving prices up.  Not enough supply means people are willing to pay more to get their piece of the pie.

Adding to the supply problems: The majority of home buyers are First time buyers who account for 32% - 50% of all transactions in 2023 depending on which report you read (NAR says 32% and Zillow says 50%). on top of that we are averaging around 27% of transactions as investor buyers. BOTH of these take away inventory without replacing it. 

With 70% of existing mortgages being under 4%, existing homeowners remain on the sideline often living in a home that doesn't fit their needs waiting for rates to drop. Fun Fact: MOST of them have over $15,000 in credit card debt with rates well over 25%, many have HELOCs that are at best 8.5% but most are higher. Taking some of their record equity in a sale to pay off that debt can allow them to buy more house without a huge change in current monthly payments... But that is a topic for another day.

I'd say it is pretty safe to buy a house today, don't you think?

If you are looking to purchase or refinance a home in NJ, please give me a call, I can also help you in all 50 states, CMG is licensed throughout the country.

Robert Rauf 
Mortgage Loan Originator NMLS# 248937
http://www.RobertRauf.com
or my blog: http://activerain.com/blogs/rrauf 
Office: (732)908-4868  Cell (732)740-0175 

RRauf@CMGhomeloans.com 
www.RobertRauf.com
 
 

Since 1987 I have been helping my clients fulfill their dream of home ownership! CMG Home Loans  is located at 222 Commons Way Toms River, NJ 08755. NMLS #1820. Visit  www.RobertRauf.com for more information. NJ Mortgages, New Jersey Mortgages, Mortgages in NJ, mortgage in New Jersey, Mortgages in New Jersey, Toms River NJ 08753, Toms River NJ 08755, Brick NJ 08723, Brick NJ 08724 Mortgage in Ocean County NJ, Mortgage in Monmouth County NJ, Jackson NJ 08527, Howell NJ 07731, Lacey 08731 08734, Beachwood 08722 Bayville 08721, 

Michael Jacobs
Pasadena, CA
Pasadena And Southern California 818.516.4393

Hello Robert - bubbles and many sorts of ideas have been known to pop.  Sometimes in a moment but typically with some notice or forewarning.   Time tells much.  But not all.  It's the craziness of the presence of the nuances in life that seem to be ever-present.  Talk about a gift.  🎁 Well, in some ways.  

Feb 20, 2024 01:03 PM
Robert Rauf
CMG Home Loans - Toms River, NJ

Michael Jacobs Time will definitely let us know... but for the present we can dig down into the data before big decisions are made so we can sleep at night

Feb 20, 2024 02:04 PM
Michael Jacobs

It can provide perspective.  

Feb 20, 2024 02:38 PM
Jim Crawford
Long & Foster - Fredericksburg, VA
Jim Crawford Broker Associate Fredericksburg VA

Thank you for taking the time to prepare and share this market information!  Very professional and informative.

Feb 20, 2024 06:28 PM
Robert Rauf
CMG Home Loans - Toms River, NJ

Jim Crawford  You are welcome!  It is definitely "shareable" with our clients that may be worried about home prices.

Feb 21, 2024 07:48 AM