Two Reasons Why Today’s Housing Market Isn’t a Bubble
It's crucial to realize that the data and professional perspectives paint a different picture from the headlines and talk about a possible housing bubble or crash. In a recent study, Pulsenomics asked more than 100 real estate economists and housing market specialists if they thought the home market was in a bubble. The findings show that, according to the majority of experts (see graph below):
According to a significant majority (60%) who responded to the graph, the housing market is not now in a bubble. According to the same survey, the following factors explain why this year is different from 2008:
The demographics and poor inventory are to blame for the current increase in housing prices.
- Due to good underwriting and lending requirements, credit risks are low.
- Here's a detailed look at those two crucial elements if you're worried a collision may be approaching; it should allay your worries.
1. Low Housing Supply Is Driving Up Home Prices
About six months' worth of housing inventory is required to maintain a typical real estate market. Anything more than that is considered an excess and will result in falling pricing. Anything less than that creates a shortage and will cause prices to rise further.
The graph below demonstrates how the oversupply of homes for sale between 2007 and 2010—many of which were short sales and foreclosures—led to a decline in home values. Since there is still a lack of available inventory, housing prices are continuing to rise (see graph below):
Nothing about inventory is the same as before. Prices are growing as a result of a strong desire for homeownership and a constrained supply of available properties. Odeta Kushi, First American's deputy chief economist, 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 Different from Previously
Mortgage approval was considerably simpler than it is now during the housing bubble. Here is a graph comparing the number of mortgages given out to buyers with credit scores less 620 during the housing boom to the volume given out in the years that followed:
This graph demonstrates one reason why mortgage rules today differ significantly from those of the past. Compared to the years prior to the crash, buyers who obtained a mortgage in the last ten years are substantially more qualified. According to Realtor.com
“. . . Lenders are giving mortgages only to the most qualified borrowers. These buyers are less likely to wind up in foreclosure.”
To sum up
Most analysts concur that there is no housing bubble at the moment. This is so because tougher lending criteria today and solid housing market fundamentals are supporting the surge in property prices. If you have any queries, get in touch with me so we can talk about how the housing market has changed since 2008.