Bubble or No Bubble?
As real estate professionals we find ourselves being asked if we are concerned about another housing bubble or market crash?
A fair question, with many communities experiencing a record low inventory and no shortage of buyers who eagerly offer well over list price with appraisal guarantees. Leaving many consumers scratching their heads and wallets and, wondering where all of this is heading.
Those of us who experienced the housing crash in 2008-2012 really don't want to go back to the days of underwater sellers and houses sitting on the market for months at a time without a single offer. The good news is that this isn't 2008 and 2021 has a few things the sub prime market could only dream about back when short sale became a household word.
Here are a few differences between what happened then and what we are seeing now. Reason #1 Equity. After several years of steadily increasing home values, we are seeing homes appreciate at a record rate. Reason #2 Cash. We are seeing a large increase in the number of cash purchases and even finance buyers are making substantial down payments. in short, if they had to sell then they could even if it meant taking a short term hit. Reason #3 Inventory. Today's record low inventory is keeping demand at record high levels versus the low demand and high inventory during the housing crisis. Reason #4 Interest rates and fixed rate mortgages. Today's homeowners are paying more on their loan principal earlier in their mortgage than ever before. Which again, creates equity sooner than later even without appreciation in value. Also, having so many homeowners on fixed rate mortgages reduced the likelihood of underwater sellers.
All-in-all, homeownership continues to be one of the most successful financial investments for many families across the nation. Even those forced to overpay in today's market are likely to see continuing appreciation offset the short term hit. With home once again becoming the central point of our lives post Covid, buyers and sellers can move forward without fear of a housing crisis anytime in the near future. Low interests rates, increasing values, large down payments with fixed rate-low interest mortgages don't even resemble a bubble.
Debbie Remington is broker-owner of Remington Team Realty, LLC., and is the inventor of the mobile app Real Estate Mentor (myrementorapp.com).