About the Last Housing Bubble and Why This is NOT One

This housing market
is crazy!

“This housing market is crazy, I’m just waiting it out until the next crash” 

We are hearing this statement from many many buyers and some would-be sellers. The low housing supply, rapid rise in home prices, and low mortgage rates have many people wondering if we are on the verge of another housing bubble. We are here to tell you that this is not the case.

The “bubble,” which formed in 2006 due to high demand on housing and low inventory was in large part caused by the rush to lend money to homebuyers without considering their ability to repay. Investors were financing second and third homes and rental properties. People were borrowing beyond their means from lenders who were all too eager to hand out the financing.

That was then!

This is now

It is true that prices have been driven up in the US housing market. It’s as simple as there is just not enough supply to meet demand. Let’s look at the nationwide numbers: in July 2007, there were roughly 4 million homes available. In March 2021, there were around 1.07 million homes available. The law of supply and demand tells us that when demand exceeds supply, prices tend to rise so it is not surprising that home prices have increased 12.2% over the past year. Using the median selling price for homes in 2020, this means that there has been an increase of $35,000 on average. This marks the fastest pace of increase since 2006.

In addition to an increase in housing prices, for the past several months, the U.S. has been in a continuous pandemic-era construction slow down. Couple that with the fact that people have been more prone to working from home, which drives up the desire for more space (e.g. a bigger home) resulting in a log jam of people wanting larger homes in a market already starved of supply AND a backorder of building materials and labor shortage slowing down construction of new homes. Sure, it sounds like a dire situation, and it is certainly not ideal, but there is hope.

For those nervous about the possibility of another housing crisis, the good news is that a crash is unlikely to occur, and a “recession” isn’t due for at least another two years according to a prediction by the National Association of Realtor’s assessment showing that housing prices will go up another 8% in 2021 and slow to a 5.5% growth in 2022. 

Feeling a little intimidated by the word ‘recession’? We offer this as encouragement; a housing recession is defined as a time during which “the demand for a home will decline and the supply for a home will increase. Home prices will inevitably decline.” Not sure about you, but to us, that sounds like exactly what we need to happen right about now. A slower rate of growth in housing prices isn’t a bad thing, and it doesn’t necessarily mean the market is crashing, it is just the market doing what markets do; always moving toward equilibrium... until the next thing throws it out of whack.

The best-case outcome

A construction boom expedited by Biden’s infrastructure plan, which would mean more supply and in turn, help slow the rise of housing prices.

The bottom line

Housing prices are likely to remain high and may continue to rise gradually for a while. We have helped buyers who, four years ago, said they were waiting until the market crashed. If you have time to wait and don’t mind renting, maybe this option works for you. If, on the other hand, you think you may want to become a homeowner (or move into a bigger home, buy that income property or cottage etc) sometime within the next 3 years, we recommend not waiting it out as another crash may not come for a very very long time.

For sellers, it’s a similar yet more complex situation. The chances are very good that you can sell your home at top dollar right now keeping in mind that you will likely need to pay top dollar for your next home. There are a few proven strategies that we implement for people making the jump between two homes and as always, it depends on your needs, desires, and circumstances. The best way to get started is to reach out to us and set up a time to discuss your situation and strategize. We are always happy to help.