Will the Bubble Pop?

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It is apparent that the state of the current real estate market is unprecedented. It has been shaped by supply shortages, major increases in building costs, and the Covid-19 pandemic, causing prices to rise and bidding wars which are leaving buying disappointed. But, does this mean that we are in a bubble just waiting to pop? Real estate and economic specialists are interviewed in the article below Bubble Trouble: Is the Market on a Collision Course with Disaster? by Jim Dalrymple II and their consensus looks hopeful. The overview is that nothing goes up forever, therefore we are not headed for a collapse but rather a slow down in the market over the coming months.

Comparing our current market with 2008, which was the last national housing bubble, there are vast differences. In 2008, lenders loosened the reigns and “exotic” mortgage products were made available. In addition, the market was reversed, where the supply of available housing greatly exceeded demand. Homeowners couldn’t sell their house for more than what they owed on it, putting them underwater. Today the lending is much more conservative and the demand allows homeowners to sell and net a profit, creating an overall more stable market.

On a short-term timeline, specialists expect the market to start cooling within months as we head into the second half of 2021. During lockdowns, many people were able to work from home along with others collecting unemployment. However, since restaurants, shops, theaters, etc. were closed during this period, many buyers were able to reallocate their discretionary income towards saving for a new house. Now with everything reopening, they have the opportunity to spend that money on lifestyle-oriented activities therefore decreasing the interest in the housing market. Other factors include builders adding new inventory and data shows that 10% of homeowners are looking to sell sometime in 2021. All of these factors put together mean that the intensity of the buying market should subside withing the coming six months. Looking out even further, the price appreciation will continue even if it is at a slower rate than today. According to the John Burns Real Estate Consulting forecast, the current appreciation rate is 13.8% for single family homes and that he predicts it will fall to 6% in 2022, 4.9% in 2023, and down to 4.1% in 2024. Projection also state that mortgage rates will rise from the current 3.2% to 3.7% in 2022, 4% in 2023, and 4.3% in 2024 for a 30-year fixed.

All in all, we believe this is good news, the real estate market does not seem to be headed towards a “pop”. We look forward to assisting you with your real estate needs and answering any questions you may have about today’s market.

You can read more on Dalrymple’s article here: https://www.inman.com/2021/05/03/bubble-trouble-is-the-market-on-a-collision-course-with-disaster/