Don’t Worry—We’re Not in a Housing Bubble

You don’t need to worry about another market crash.

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If you’re worried that we’re in another housing bubble, don’t be. There are three reasons why our current market is different than the one we saw back in 2008:

1. Inventory is much lower this time. Housing supply in real estate is measured by the months’ supply of inventory. The National Association of Realtors considers a balanced market a market that has four to six months’ worth of supply. In our marketplace, a balanced market usually has three and a half to four months of supply. Usually, it doesn’t go much higher than that, and anything less than that range is considered a seller’s market.

Right now we have about a month of inventory, and some areas have less than that. This means that the current sales pace would eat up all current inventory in a month or less. We’ve never seen inventory this low, and it’s been like this for the past seven or eight months. Leading up to the last housing bubble, even though we were in a hot seller’s market, supply still hovered between three and five months. Even though prices were sky-high, we were still in a balanced market.

2. Demand is high thanks to historically low interest rates. Since rates are so low, a lot of people are afraid they’ll miss out on this opportunity. In the mid-2000s there was also high demand, but that was more of a systemic effect. There were a ton of crazy, exotic loans that enabled many people to buy homes who probably weren’t qualified to buy them. Today’s buyer demand is much more authentic in that it’s built on stronger ground. Buyers are getting super low rates for 30-year fixed mortgages. On top of that, more millennials are jumping into the market, and they’re the largest buyer pool.

"If and when our market cools down, it will be a healthy, gradual pullback—not a fallout."

3. People are more thrifty with their equity. In the mid-2000s, many people were using the escalation of their home’s value as their personal ATM. You saw it all the time—they would cash out on their equity and buy cars, boats, vacation homes, etc. They were using their homes for frivolous spending instead of building wealth. Now we’re not seeing that so much. Over the past three years, the number of cash-out refinances is less than a third of what we saw in the three years preceding the 2008 crash. If there was some sort of market pullback, we’d have an equity buffer in place to lessen the damage.

Obviously, we don’t have a crystal ball, but from a fundamental standpoint, if and when our market cools down, it will be a healthy, gradual pullback—not a fallout. In any case, we don’t see that happening anytime this year, and we might not see it until the middle of 2022.

As always, if you have questions about this or any real estate topic or are thinking of buying or selling a home soon, don’t hesitate to reach out to us. We’d be happy to help.