Is this the “Next Housing Bubble?”

According to Google Search,  “Are we in a housing bubble?” and “will the housing market crash?” saw a tremendous increase in Google searches over the last 12 months. Google reported last week that the search “When is the housing market going to crash?” had spiked 2,450% .

The economy is facing some unique circumstances. It remains to be seen as to how we will level out with rising home prices, unemployment, and inflation over the next few months. As with all markets, it is a sure bet that residential real estate will normalize again. We just don’t know how long it will be before that happens.

Most economists and housing experts don’t see another housing crash looming like we experienced in 2007-2009.

Brian Buffini, Real Estate Coach and Trainer and Dr. Lawrence Yun, National Association of Realtors – Chief Economist spoke recently about these issues. Here’s a great summation from the Brian Buffini Real Estate Report that points out the difference between 2007-2009 and 2021.

Brian Buffini Real Estate Report 2021

If we look back at the 2007 – 2009 housing crisis, we see fundamental differences with credit and inventory. Low interest rates and lax lending standards made it possible for millions of Americans to borrow more than they could afford. Plus speculative buyers in some markets added to the crisis.

Borrowers have more equity in their homes now. CoreLogic Inc. estimates that,  “Only 2.8% of people owe more on mortgages than their homes were worth at year end.  This was down from 26% who had negative equity in late 2009.” So this means that homeowners who can’t make payments are more likely to sell at a profit and avoid foreclosure now than in 2009. And, hundreds of thousands of homeowners who are behind on mortgage payments may still find relief as  the CARES Act’s homeowner protections may be extended for some.

Today, low inventory and high buyer demand is the reason prices continue to rise. As of April 2021, 1.16 million homes are for sale. In July of 2007, there were 4 million homes for sale. Dr. Yun says, “Core inflation (which excludes food and fuel) is at the highest it has been in 30 years. Today’s homeowners see the mortgage portion of their house payment as a hedge against inflation. This fixed payment helps families budget. Rents are expected to go up by 4% in most areas of the country and and some areas could see a 7% increase. ”

2.3% -3% interest rates see buyers rushing to lock in rates in 2021

Historic Interest Rates created a rush of buyers who want to lock in. Freddy Mac says, “We forecast that mortgage rates will continue to rise through the end of next year. We estimate the 30-year fixed mortgage rate will average 3.4% in the fourth quarter of 2021, rising to 3.8% in the fourth quarter of 2022. While higher mortgage rates will help slow the pace of home sales and moderate house price growth, we expect overall housing market activity will remain robust.”

For the most part, there just are not enough homes available for people to buy. Younger buyers are outpacing the Boomer generation according to 2021 Home Buyers and Sellers Generational Trends Report (NAR) – Millennials (age 22-40) are starting to establish families and need more space. Millennial buyers make up 37% of today’s buyers. GenXers (41-55) make up another 24% of todays buyers and are buying larger and more expensive homes. This generation is the highest income earners.

Dr. Yun says “Expect continuing solid price gains in the upcoming months. Some calming of the market is expected to happen in late autumn of this year and into 2022. Home price growth will be in the single digits in 2022. More inventory will show up as homebuilders ramp up production, and from the winding down of the mortgage forbearance program. Also, some investors who could not evict due to the federal law may now decide to unload later this year.”

Dr. Yun also says , “A home price decline is unlikely. However, should it occur, since price gains have been unusually large, it will be of short duration. Many homebuyers would view home price declines as a second-chance opportunity after getting outbid in current multiple-bid market conditions.”

Older homeowners feel safer now and may want to move closer to family

According to the 2021 Home Buyers and Sellers Generational Trends Report (NAR) – Baby Boomers make up the largest share of sellers at 43 percent and Baby Boomers are selling to move closer to friends and family, due to retirement, or because their home is too large. 

Dr. Yun says “With the number of new cases of Covid coming down drastically, with vaccinations, older homeowners feel comfortable inviting people to their homes.  We are beginning to see elderly dining indoors and they will start listing their homes.  We will see the migration of people from high tax states start to move. More acuteness of the tax differential between states.”

As my mother always says, “We can only look forward and make the best decisions with the information we have at hand. It’s always easy to see what we might should have done when we have hindsight. Hindsight takes time. Life is best lived looking forward to new adventures and new challenges!”

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