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Two Reasons Why Today’s Houszing Market Isn’t a Bubble





You may be reading headlines and hearing talk about a potential houszing bubble or a crash, but it’s important to understand that the data and expert opinions tell a different story. A recent survey from Pulsenomics asked over one hundred houszing market experts and real estate economists if they believe the houszing market is in a bubble. The results indicate most experts don’t think that’s the case (see graph below):


As the graph shows, a strong majority (60%) said the real estate market is not currently in a bubble. In the same survey, experts give the following reasons why this isn’t like 2008:

  • The recent growth in home prices is because of demographics and low inventory

  • Credit risks are low because underwriting and lending standards are sound

If you’re concerned a crash may be coming, here’s a deep dive into those two key factors that should help ease your concerns.

1. Low Houszing Inventory Is Causing Home Prices To Rise The supply of houszes available for sale needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation. As the graph below shows, there were too many houszes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s still a shortage of inventory, which is causing ongoing housz price appreciation (see graph below):


Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for houszownership at the same time there’s a limited supply of houszes for sale. Odeta Kushi, Deputy Chief Economist at First American, explains: “The fundamentals driving housz price growth in the U.S. remain intact. . . . The demand for houszes continues to exceed the supply of houszes for sale, which is keeping housz price growth high.”

2. Mortgage Lending Standards Today Are Nothing Like the Last Time During the houszing bubble, it was much easier to get a mortgage than it is today. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the houszing boom, and the subsequent volume in the years after:


This graph helps show one element of why mortgage standards are nothing like they were the last time. Purchasers who acquired a mortgage over the last decade are much more qualified than they were in the years leading up to the crash. Realtor.com notes: . . . Lenders are giving mortgages only to the most qualified borrowers. These buyers are less likely to wind up in foreclosure.”

Bottom Line A majority of experts agree we’re not in a houszing bubble. That’s because home price growth is backed by strong houszing market fundamentals and lending standards are much tighter today. If you have questions, let’s connect to discuss why today’s houszing market is nothing like 2008.

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