3 Reasons We Are Definitely NOT In A Housing Bubble

Home values appreciated by about ten percent in 2020, and they’re forecast to appreciate by about five percent this year. This has some voicing concern that we may be in another housing bubble like the one we experienced a little over a decade ago. Here are three reasons why this market is totally different.

  1. This time housing supply is extremely limited! – supply and demand in real estate is measured in months supply of inventory which is based on the number of current homes for sale compared to the number of buyers in the market.

    The normal months’ supply of inventory for the market is about 6 months. Anything above that defines a buyers’ market, indicating prices will soften. Anything below that defines a seller’s market in which prices normally increase.

    Between 2006 and 2008, the months’ supply of inventory increased from just over 5 months to 11 months.  Big difference!  The months’ supply was over 7 months in twenty-seven of those thirty-six months, yet home values continued to rise.

    Months’ inventory has been under 5 months for the last 3 years, under 4 for thirteen of the last fourteen months, under 3 for the last six months, and currently stands at under 2 months which is historically LOW.

    Remember, if supply is low and demand is high, prices naturally increase.

  2. This time housing demand is real! – In the current real estate market, demand is real, not fabricated. Millennials, the largest generation in the country, have come of age to marry and have children, which are two major drivers for homeownership. The pandemic we are in, is also challenging every household to redefine the meaning of home and to re-evaluate whether their current home meets that new definition. This desire to own, coupled with historically low mortgage rates, makes purchasing a home today a strong, sound financial decision. Therefore, today’s demand is very real.

  3. This time households have plenty of equity! – If we combine the 38% of homes that are owned free and clear with the 18.7% of all homes that have at least 50% equity (30.2% of the remaining 62% with a mortgage), we realize that 56.7% of all homes in this country have a minimum of 50% equity. That’s significantly better than the equity situation in 2008!

As you already know, housing supply is at a historic low.  Demand is real!  And rightly motivated!  Even if there were to be a drop in prices, homeowners now have enough equity to be able to weather a dip in home values.  This is nothing like 2008.  In fact, it is the exact opposite.