Many people are wondering when the real estate bubble will break, but what if I told you we’re not in a bubble?
What’s a Bubble?
What do I mean, we’re not in a bubble? Typically a bubble means the market could easily pop if one or two benign things go the wrong way. So, by that definition, we’re not a in a bubble and there’s no signs of a crash.
Comparing this Market to the Previous Crash
Now let’s take a look at what this market looks like compared to the last crash in 2007/2008. In both cases, you have extremely high buyer demand. Also in both cases, you have exorbitantly, never before seen, high prices. Demand was so high in 2008 that builders couldn’t make homes fast enough. Again, we have incredible buyer demand, but the building that was happening in the first crash is not happening, at least not as much, or even enough to satisfy the demand from buyers. In fact, we’re about 10 years behind on having enough homes produced to keep up with buyer demand.
Two Key Differences
Everyone is on edge for this real estate market because it looks almost identical to the last crash, which affected everyone’s lives. However, there are two key differences. Lack of supply and mortgage regulations.
Lack of Inventory
In this market, as already mentioned, we have been running on fumes in terms of supply of available homes. For each home on the market, there are about 3-10 buyers, sometimes even more!
Qualified Loans & Buyers
The next big difference is new mortgage regulations. In the last crash, one could state their income to a lender (it was not verified). So, buyers are paying for homes they don’t qualify for. This time around, low interest rates are what is allowing buyers to qualify for more. However, because the prices are so high, this is cutting out a large percentage of local buyers.
A Changing Landscape
The final difference is the buyers themselves. With increasing internet access, our Lewis County is being squeezed from buyers in higher markets. While a 3/2 starter home in Lewis County is typically worth around $175,000, in these higher priced markets it would be worth $675,000. The buyer from the higher priced market can now pay cash and throw an extra 50k on top to win the bidding war. Thus, our prices have skyrocketed over the last few years to an average of around $375,000 for the same exact house.
Are We in a Real Estate Bubble?
In short, no. While the symptoms are eerily similar, the root causes are different. Even if there was a massive crash like 2007/2008, we’d be back to last years prices. That’s what makes this a different market. However, just because the market is on solid ground, doesn’t mean it will be this way forever. It does, though, look like this might be the status quo for a while.