Are We In A Housing Bubble?

This housing cycle is not a bubble, there are three charts to prove it

With home prices continuing to deliver double-digit increases, some are concerned we're in a housing bubble. However, the data on the market suggests this is not 2006 for three major reasons.

1. The housing market in the United States is not driven by risky mortgage loans

In 2006, many people could qualify for a loan,

In 2006, a loan could be qualified for by many people. In 2006, many people with low credit scores could qualify for a loan. A significant number of people who were previously shut out of the home loan market had access to homeownership.

It’s important to consider the history of home buying trends in order to understand the evolution of mortgage markets. Even though mortgages today are requiring less volume and less credit, it’s safer because lower credit score loans were much more prevalent.

In Arizona we are seeing droves of people moving here from states that have significantly higher priced homes. They are selling there homes, and using the equity to pay cash for homes in Arizona.

With the volatile market of the past few years, it is wise to look for lower-risk loans. In 2021 We are not seeing many loans that are variable rate, zero interest, or even liar loans.

Home borrowers are very fixed on conservative fixed rates and loans the can afford through a downturn. The fixed rate loan is a very popular loan option for home borrowers. If you're looking for a home loan that can provide stability and security in a tough economy, the fixed rate might be your best option.

Mortgage chart

2. Homeowners are not going to use their homes as ATMs this time.

During the housing bubble, many Americans were refinancing their homes and pulling out large sums of money. As prices fell, this caused many people to find themselves in a negative-equity situation.

Today, homeowners are making the most of their equity. They're putting that extra 20% or so they haven't used yet into improving their houses, adding on a room here and there or buying something big that turns out to be really valuable down the road.

Where there was once a higher percentage of cash-out refinances, this statistic is considerably low.  It's now lower than in 2006.

chart of cash out refinances

3. Supply and demand, and low mortgage rates is the 2021 real estate boom

The housing market in 2006 was driven by FOMO, leading to the housing bubble. Fear of missing out and liars loans are not a good mix.

Back in 2006 inventory of homes was typically over a 6 months supply, here in 2021 we are looking at just over a 1 month supply of homes, maybe 2 with the new builds added to the number of available homes for sale.

Builders ended up overbuilding in the early 2000’s but pulled back significantly by the 2010-and on.

Builders today are in short supply of building materials, and major appliances like an a/c/heating unit. These appliances are key to keeping your home cool in the summer and warm in the winter. They also protect you from the many bugs that come into your house during the summer and winter. There is a significantly less building today due to an increased demand for these major appliances which are driving up their prices.

The cost of building materials has been rising in recent years, and many people are having a hard time finding the money to do their projects. For those who are looking for a way to build their dream home in any location, this may be a problem. But there is still hope! You can use recycled materials or natural resources found on the property to build your dream home.

Here is a chart that shows what Khater mentioned: Today, there simply isn't enough houses to house the current demand.

chart of new homes completed by decade

Bottom Line This market is nothing like the run-up to 2006.

The financial crisis that occurred in 2008 ushered in an era of recovery and stability. Now the market is booming, and could potentially continue to climb for decades. Real estate professional s are saying: With millennials wanting homes to live in that gives us demand for a while, and prices will remain moving up or somewhat balanced because inventory is so low.

Photo by Sam Lion