Is the housing market over inflated? Are we headed for a bubble? If you are asking these questions, you aren’t alone. Escalating prices and huge gains are prompting all of us to question how long the market will continue to see such rapid price appreciation.
Looking to the Past
We all remember what happened in 2006. Housing prices peaked and then started to decline. Foreclosure rates increased. And, then the credit crisis hit. It was a mess and we haven’t forgotten. Fears over a repeat are understandable. People lost their homes, their credit, their livelihoods. But, that was then and is this is now.
The Difference in the Market Today
The mistake that fueled the past housing bubble had a lot to do with the rush to lend money to homebuyers without regard for their ability to pay. That is no longer the case. Credit remains tight and lenders aren’t issuing risky loans. According to Lawrence Yun, chief economist of the National Association of Realtors, “This is not a bubble. It is simply lack of supply.” Today’s hot market is primarily based on one key factor — big demand and little supply. According to one Morgan Stanley strategist, we have a sustainable and sturdy foundation. I like the sound of that. A lot.
Of course, a sturdy and sustainable foundation does not mean that price appreciation will maintain its current pace. Interest rate increases and barriers to affordability as prices continue to escalate, may slow things down. But, a bubble? I don’t see any major bursts in the near future and nor do the powers to be. Of course, only time will tell.
Kevin Krause
May 17, 2021
We all hope this is not another bubble…especially affecting our little corner of the world.
Yet, since the 80’s Supply-side (aka Voodoo) Economics has created 3 boom & bust cycles.
The problem this time is the decade-long too-low interest rates is coming to an end, thanks to inflation – RE up 25% in a single year!
Add to this a monthly supply of $100’s of Billions of free or almost free Fed $$$ (to prop up a 30% drop in 2020 global demand – worse than the 1930’s!) & the result will be bad!
When who & how…no one knows!!