Allaying Your Fears About a Market Crash

This data about why we’re neither in a housing bubble nor headed for one.

People have been asking me quite a bit lately whether we’re in or headed for a housing bubble. My answer is no, and today I’ll share a few points that support my position.

Let’s start with the housing supply. A level market has right around six months’ worth of homes available; anything less is a seller’s market, and anything more is a buyer’s market. Currently, we have about 0.5 months of available supply, meaning if no other homes came on the market, we’d sell out of what we have in just two weeks. That’s extremely low. Supply and demand tell us that if there’s no supply, demand goes up, which increases home values.

Part of what’s driving this increase in demand is the fact that millennials, the largest home-buying generation in the country, are starting their own families and need housing. More than that, the pandemic has redefined the household. People are starting to reconsider if they want to live in certain areas due to politics and proximity to viral hotspots, which causes them to flee and move to different states. Further, because so many people are working and schooling from home, they’re finding that they need more space to operate, so they’re looking for properties with home offices. 

Many sellers are also on the fence about listing their homes because they’re waiting for COVID to pass before they do anything or because they’ve been affected by the waves of job losses affecting various industries like the service industry.

Since we’re no longer handing out mortgages like candy, the people buying are real, qualified buyers.

The mortgage credit availability index determines how difficult (or easy) it is to get a home loan. The lower the number, the harder it is to get a loan. Just before 2006, before things exploded during the housing crash, that number was just under 400. Then, it soared up to 900, showing just how easy it was to get a subpar loan back then (those loans being the reason the market crashed anyway). Today, the index is at 122, showing just how much tighter restrictions have gotten. Since we’re no longer handing out mortgages like candy, the people buying are real, qualified buyers.

Additionally, back during the crash between 2006 and 2008, many were taking out home equity lines of credit to buy cars, pay off their credit cards, and more. A lot of them took out second mortgages on their houses, which, combined with any decline in home values, put them in a bad position. Today, we see that 38% of owner-occupied homes are owned free and clear. Around 18% of financed homes have a balance of less than 50% of what the home’s value is, which is a great position to be in. 

The bottom line is that, compared to the housing crash, people today have a lot more equity, there’s much more demand, buyers in the market are much more qualified, and interest rates are historically low. This creates a perfect storm for home sellers, which is why values have gone through the roof. San Diego is supposed to have the largest increase in home values in all the U.S. in 2021.

If you have any questions about selling your home or the real estate market in general, don’t hesitate to reach out to me. I’d love to hear from you.

Post a Comment