Are We In a Bubble? | Monday Minute

A question that gets tossed around quite a bit in this market that we are experiencing is, are we in a Housing Bubble?  Let’s dive in and look at where we are.The situation now:Right now we are experiencing an insane sellers market with super low inventory levels and because of that, prices of homes are rising.  In fact, nationwide, home values are over 14% compared to this time a year ago!  With prices continually rising like this, there is a lot of speculation that we may be in for a similar crash that we experienced in 2008.  The situation before:Back in 2005 we experienced a similar market where home values were on the rise like today, however, there were a few additional factors at play that we aren’t experiencing today.One of the largest factors that fueled the last housing bubble was the number of risky loans and overly lenient underwriting.  Credit availability was historically high during the early 2000’s. With things like stated income loans, it was practically guaranteed that you would qualify for a loan, so long as your credit was good, It was easier to get a loan than to get denied for one back then. Many people were rushing to buy into the housing market on homes they could not actually afford. Another factor that made an impact on the market were the Adjustable Rate mortgages.  Adjustable rate mortgages are a type of mortgage where the rate changes throughout the loan. In the beginning, the rates were artificially low. People bought homes based on the low monthly payments based on the low introductory rates. Many did not plan for when the rate would increase, meaning a higher monthly payment. Then, the rates adjusted and monthly payments jumped accordingly, leaving many people unable to pay their mortgages. Many of these people either had to sell or went into foreclosure, flooding the market with inventory. Like supply and demand dictates, the supply exceeded demand and the market value of homes sank drastically. Those who weren't selling saw a dramatic drop in their equity.The difference we are experiencing today is that loans have considerably more stringent underwriting requirements and low interest rates are fixed and therefore will not adjust during the life of the loan.  Additionally, prices in the early 2000’s were on the rise mostly due to speculation since most of the buyers ultimately were unable to even afford the homes they purchased. In contrast, today we are experiencing an increased demand in homes due to low fixed interest rates and a generation of Millennials that put off buying homes years after the fateful housing crash, who now need homes.Experts believe that while we may not see the same percentage of increase in home values year over year to continue at its current pace, we are not in a housing bubble.If you are thinking about buying or selling in this current market and want to find out what your next best step is, give us a call.  We look forward to hearing from you!