Do We Find Ourselves In a Housing Bubble?
Housing Bubble “warning symptoms” appear to be all too common.
Buyers and sellers are becoming increasingly concerned about the market being “too good to be true” due to rising property prices, and real estate professionals all over the United States are being deluged with inquiries about whether or not there is a housing bubble.
So that you can inform your customers and allay concerns in your market, let’s look at 3 important characteristics that indicate we’re not.
Housing Bubble: APARTMENT SUPPLY
Home prices nationwide increased by 15% on average last year. Buyers and sellers are still concerned that house prices are too high and that depreciation is likely to follow, even though this year’s rise isn’t anticipated to equal it.
However, unlike the Housing Bubble years of the mid-2000s, a severe inventory scarcity is also a key factor driving up housing values now.
Inventory in a real estate market that is in equilibrium is around six months. The number of properties for sale in the present market stands at 1.7 months, which is historically low.
In contrast, between 2005 and 2007, the inventory level jumped from 5 months to 11 months, resulting in a massive oversupply of dwellings that did not justify the accompanying price growth.
So, going back to your high school economics course, the main cause of price increases is a straightforward issue of supply and demand, which explains the current state of the market.
Also Read: Whats a Short Sale in Real Estate?
Housing Bubble: HOUSING DEMAND
If you can recall the mid-2000s housing boom, you will be aware of how insane the real estate market was at that time. But if Robert Schiller, a fellow at the International Center for Finance at the Yale School of Management, could sum it up in one word, it would be “irrational exuberance.”
In other words, a widespread case of FOMO rather than prudent financial judgments drove the buying and selling frenzy that contributed to the market crash (fear of missing out).
People were able to easily get house loans that were considerably greater than what they could afford because to the mortgage industry’s contribution to the frenzy.
However, the demand for real estate today is a very serious issue. And since the financial crisis, lending requirements have tightened significantly.
Additionally, many Americans are choosing homeownership for the financial security it provides while rents rise throughout.
These elements, along with the current low mortgage rates, make buying a home a wise financial move. Therefore, the demand is extremely intelligent in addition to being very genuine.
Economists, financiers, and real estate industry professionals have scoured through data since the housing and economic meltdown of 2008 to determine why the entire system collapsed in the manner that it did.
Most people will concur that equity was one of the most important factors in that disastrous equation. Or, more accurately, a lack of it.
A significant number of homeowners took advantage of their homes’ equity in the middle of the 2000s. To put it simply, they were utilizing their houses as ATMs to pay for some of life’s nicer goods.
As a result, there were many cases of negative equity, where a person owed much more on their house than it was worth. The number of short sales and foreclosures that followed decreased property prices across the country.
Today’s equity situation is very different. When compared to the three years prior to the crisis, the volume of cash-out refinances over the last three years has decreased by more than a third. Additionally, rising appreciation meant that homeowners increased their equity by an average of $55,300 only during the past year. Equity will increase along with price growth.
The present housing market is considerably stronger as a result of this positive equity viewpoint, which also reduces the danger of foreclosure and stabilizes property values all throughout the United States.
Also Read: How to Become a Real Estate Investor
Being an educator for their clients is a real estate agent’s most crucial responsibility.
In order for your customers to make the optimal real estate choice, what it truly means is assessing facts and insights, obtaining both sides of a story, and then being able to express that.
The most effective weapon you have in your business is information, in the end. Utilize it whenever you can!
Source Credit: keepingcurrentmatters