Why the housing market today isn't a bubble

You may be reading headlines about a potential housing bubble or crash. Even so, it is essential to keep in mind that the data and the expert opinions tell a different story from what is evident from the data. Pulsenomics conducted a recent survey where they asked over one hundred housing market experts and real estate economists if they believed the housing market was in a bubble. Based on the results, most experts do not believe that is the case. In the same survey, experts give the following reasons as to why this year is different from that of 2008:

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

  • Generally, credit risks are down as a result of sound underwriting and lending standards

As a result of the low housing supply, home prices are rising too fast. The amount of homes available for sale needed to sustain a regular real estate market is approximately six months' worth of inventory. Anything more than that is considered an overabundance, and the price will depreciate as a result. Anything less than that is viewed as a shortage, which will result in the price continuing to rise.

Between 2007 and 2015, there were too many homes for sale (many of which were short sales and foreclosures), leading to the prices of homes plummeting. In today's market, there's still a shortage of inventory, which is causing home prices to continue to appreciate.

The rise in home prices is because there is a healthy demand for homeownership, while at the same time, there is only a limited supply of homes available for sale. In terms of inventory, it is nothing like it was last time. Odeta Kushi, First American's Deputy Chief Economist, explains the following:

"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."

The mortgage lending standards of today are very different from those of the past.

In the days of the housing bubble, it was much easier to get a mortgage than it is today. During the decade leading up to the financial crisis, mortgage purchasers who acquired a mortgage over the last decade were significantly less qualified than those who obtained a mortgage before the crisis hit, and today Realtor.com notes:

". . . As a result, lenders are giving mortgages to only the most qualified borrowers. These buyers are less likely to wind up in foreclosure."

It comes down to this .... 

A majority of experts agree we are not in a housing bubble at the moment. This is partly due to the solid fundamentals of the housing market back home, the price growth, and the incredibly tight lending standards in today's market. If you want to know more, I would be happy to answer any questions you might have about why today's housing market is nothing like 2008.