If you haven't lived under a rock these last couple of years, you probably are aware of the crazy housing market right now.
Those trying to buy a home, good luck!
If you are a homeowner, the value of your home has most likely skyrocketed.
If you are selling your home, you can pick between multiple offers you receive at $10,000+ over asking with no inspections, sight unseen.
Oh, and they'll also pay for a weeklong vacation to your destination of choice (not really), but you get the point!
The memories of the market crash in 2008 just come swarming in with fears that this current housing market environment is only history repeating itself.
The fears are valid, but what actually is a housing bubble and what caused the 2008 market crash in the first place?
A "Housing Bubble" is when home values become over inflated in a short period of time, which can be unsustainable, and can result in the market crashing and effecting the economy as a whole.
As I'm sure you know, the main reason why the market crashed in 2008 was because the banks and lenders were financing mortgages to everyone with a pulse.
Not to mention the unemployment rate was climbing at a rapid pace, which caused many unemployed to default on their loans.
The foreclosures and short sales ensued, and the imbalance of supply and demand then caused housing prices to plummet.
So that brings the question, are we in a "Housing Bubble" today?
We are not. I actually believe the housing market is going to remain pretty solid and steady moving forward.
The difference between today's market vs. 2008 is there are now more regulations in the lending process, thanks to the laws of the Frank-Dodd Act, to ensure home buyers can actually afford the homes they are trying to buy.
Not to mention, the national unemployment rate is at a very low 3.6% according to the U.S. Bureau of Labor and Statistics.
We also continue to have a low inventory of homes with plenty of qualified buyers. The low inventory is due to a few reasons...
- Construction of new homes has not been able to keep up with the demand and it is now more expensive than ever to build new homes. Low inventory!
- Current homeowners finding stability in their increased home equity allows them to do a cash out refinance and do home improvements or pay off high interest debt. Homeowners are staying put. Low inventory!
- Investors and hedge funds have been buying out property and single-family homes for decades. They hold them for 5-10 years as rental property, then simply sell that portfolio to another investor. All those homes that would have been on the market individually are now lumped into a large real estate portfolio. Low inventory!
What does this mean moving forward?
Homes sales are predicted to remain strong and steady for the next few years according to the housing forecast published by Fannie Mae for June 2022.
To be fair, the market has cooled down with the Fed's decision to raise the interest rates to combat inflation.
However, the evidence is clear that a "Housing Bubble" would have leading indicators that are the exact opposite of the environment today.
Rest assured, home ownership continues to be a solid investment and I hope this was helpful to you today on this wonderfully warm Friday in July.