You may be reading headlines and hearing talk about a potential housing bubble or a crash, but it’s important to understand that the data and expert opinions tell a different story. A recent survey from Pulsenomics asked over one hundred housing market experts and real estate economists if they believe the housing market is in a bubble. The results indicate most experts don’t think that’s the case (see graph below):
As the graph shows, a strong majority (60%) said the real estate market is not currently in a bubble. In the same survey, experts give the following reasons why this isn’t like 2008:
- The recent growth in home prices is because of demographics and low inventory
- Credit risks are low because underwriting and lending standards are sound
If you’re concerned a crash may be coming, here’s a deep dive into those two key factors that should help ease your concerns.
1. Low Housing Inventory Is Causing Home Prices To Rise
The supply of homes available for sale needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.
As the graph below shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s still a shortage of inventory, which is causing ongoing home price appreciation (see graph below):
Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist at First American, explains:
“The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.”
2. Mortgage Lending Standards Today Are Nothing Like the Last Time
During the housing bubble, it was much easier to get a mortgage than it is today. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the years after:
This graph helps show one element of why mortgage standards are nothing like they were the last time. Purchasers who acquired a mortgage over the last decade are much more qualified than they were in the years leading up to the crash. Realtor.com notes:
“. . . Lenders are giving mortgages only to the most qualified borrowers. These buyers are less likely to wind up in foreclosure.”
A majority of experts agree we’re not in a housing bubble. That’s because home price growth is backed by strong housing market fundamentals and lending standards are much tighter today. If you have questions, let’s connect to discuss why today’s housing market is nothing like 2008.
First, it’s important to understand what a seller’s market is. A Seller’s Market is when many buyers compete for a property because of low inventory, particularly properties priced well and in move-in-ready condition. It’s not rare for homes like those to attract bidding wars, but in a seller’s market, it’s drastically more competitive. When this happens, the house is likely to sell for more than what it’s priced at, but for many sellers, there’s more than just the increase in price that influences their decision when accepting an offer.
If you’re a buyer in 2022, you will certainly be up against other offers from motivated buyers such as yourself. So, for this blog, we’ll be giving you 30 great tips on how you could stand out above the rest, and write a winning offer based on our extensive research and experience.
- Submit your mortgage pre-approval from a reputable, local lender – Getting prequalified before your home search will make for a much smoother offer writing process for you and your agent, have your current bank statements as well as your pre-qualification letter ready to go once you start looking for your home.
- Even better, work with a local lender who can deliver your loan commitment in two weeks or less – Your agent can usually recommend a lender who is able to get your loan funded promptly, often sellers lean towards accepting offers with shorter close windows and you’ll want to make sure your financials are free and clear and your loan funded in time for that tight turnaround.
- Ask your mortgage lender to email and call the listing agent on your behalf when you submit your offer
- Partner with a realtor who has a proven track record in this year’s market. It goes without saying that each of these items is best taken care of and strategized by a seasoned professional. Buying a home is one of the biggest and most important purchases a person may make in their lifetime, with this immense responsibility it is important to have a licensed expert as your co-pilot
- If your finances allow, use a down payment amount of at least 20%-25%.
- Consider whether you really need to include an appraisal contingency in your offer to purchase. This contingency in a seller’s market should be discussed with your agent. It will make for a smoother close to shorten or lessen any contingencies and this becomes desirable to sellers because it will ensure a quick and easy close.
- If possible, don’t make your offer contingent on the sale of your current home.
- As much as possible, shorten each contingency deadline (financing, inspection, etc.)
- Write a personal letter about why you love the home for your agent to include in the offer presentation
- Write your offer before showings are allowed
- Make the seller’s move easier by allowing the seller to rent back the property
- Offer to close quickly