You may be reading headlines and hearing talk about a potential housing bubble or a crash, but its important to understand that the data and expert opinions tell a different story. Arecent surveyfromPulsenomicsasked over one hundred housing market experts and real estate economists if they believe the housing market is in abubble. The results indicate most experts dont think thats 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 isnt like 2008:
- The recent growth inhome pricesis because of demographics and low inventory
- Credit risks are low because underwriting andlending standardsare sound
If youre concerned a crash may be coming, heres a deep dive into those two key factors that should help ease your concerns.
1. Low Housing Inventory Is Causing Home Prices To Rise
The supply of homes available for sale needed to sustain a normal real estate market is approximatelysix 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 homes for sale from 2007 to 2010 (many of which were short sales andforeclosures), and that caused prices to tumble. Today, theres still ashortage of inventory, which is causing ongoing home price appreciation(see graph below):
Inventory is nothing like the last time. Prices are rising because theres a healthy demand for homeownership at the same time theres a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist atFirst American,explains:
The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.
2. Mortgage Lending Standards Today Are Nothing Like the Last Time
During the housing bubble, it was much easier to get a mortgage than it is today. Heres a graph showing themortgage volumeissued to purchasers with a credit score less than 620 during the housing 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.comnotes:
. . . 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 were not in a housing bubble. Thats because home price growth is backed by strong housing market fundamentals and lending standards are much tighter today. If you have questions, lets connect to discuss why todays housing market is nothing like 2008.
