Is it a Housing Bubble?
It does looks familiar… So, is it a housing bubble? Home prices are high, housing is in demand. Is the current real estate market too good to be true for sellers?
Supply of Housing
In 2021, home values appreciated an average of 15% across the United States. Even though this year’s growth is not expected to match that, buyers and sellers still worry that home prices are too high and that depreciation is likely. But, unlike the housing bubble in the mid-2000s, the major factor driving up home values is that we’re also in a large inventory shortage.
A balanced real estate market’s inventory is about 6 months. Today’s current market is a little over 1.5 months- that means there is a historically low amount of homes for sale.
From 2005 to 2007 housing inventory increased from 5 months to 11 months, an over-supply of homes that did not warrant the price appreciation that went along with it.
[What does “months of inventory” mean in real estate?
It’s the relationship of sales pace to the number of properties currently on the market if no additional homes were added to the supply. It is calculated by determining the number of homes sold per month and dividing by the total number of properties for sale on the last day of the month.]
The biggest driver of price appreciation is a case of supply and demand, and that’s what we’re seeing in the market today.
Demand for Housing
If you remember the housing boom in the mid-2000s, you know how crazy that time was in real estate. The buying and selling frenzy that was part of the market collapsing was fueled not by smart financial decisions, but rather by a country-wide case of “fear of missing out”.
The mortgage industry made it easier than ever for people to obtain home loans for much more money than they could afford. But, today’s real estate demand is a very real thing. Also, today’s lending standards have become much tighter since before the crash in the mid-2000s.
There is also the concern of escalating rent that’s happening across the U.S. Because of this, many Americans want the financial stability that homeownership provides. This, coupled with the lower mortgage rates, makes purchasing a home today a good financial decision. Not only is the housing demand very real, it’s also a very smart move.
There is Equity
After the housing/economic crash of 2008, economists, financiers, and professionals in the real estate industry examined the data to figure out why the entire system crumbled the way it did. Most of them agree that one of the biggest pieces of that catastrophic equation came down to equity- or in this case, the lack of it.
In the mid-2000s many homeowners cashed out the equity in their homes using that equity to afford more extravagant things. This led to negative equity- lots of it. The amount owed on homes was far more than what houses were worth. Then came many foreclosures and short-sales, further depreciating home values significantly.
Today, there’s a much different situation. Cash out refinances over the last few years is less than 1/3 of what it was compared to the three years before the crash. And, appreciation has grown. Homeowners have gained an average of $55K in equity in the last 12 months. As long as prices rise, so does equity. This positive situation leaves the current housing market in a much stronger place, stabilizing home values and minimizing the risk of foreclosures.
We, as Realtors, play a very important role as educators to our clients. We analyze information and insights, the market, and continue monitoring Southwest Florida real estate very closely so we can accurately communicate pertinent information to our clients so they can make the best real estate decision.
If you are in need of guidance through your home purchase or sale, give us a call. We are experts in the real estate field, and we’re always here to help.
