With the red-hot real estate market, we’re experiencing, many consumers are understandably concerned. The soaring home prices and a lack of homes for sale may feel eerily similar to the 2007 housing bubble that led to The Great Recession.
So, is there a reason to worry? There are many reasons that can lead to a housing bubble:
- A rise in economic activity.
- Low mortgage interest rates.
- Loosemortgage lending practices (this one created the last recession)
- New mortgage products.
- A sudden increase in migration.
- The time it takes to build a house.
- Speculative and risky behavior.
Are we in housing bubble right now?
Most experts don´t think so. The circumstances are different than those of the 2006-2007 housing bubble.The bubble that eventually led to The Great Recession was primarily a result of irresponsible lending. Just about anyone who wanted a mortgage could get one, even if they didn’t have the income to afford it. However, this time mortgage requirements are stricter and the current demand isn’t caused by reckless lending. It’s the result of true supply and demand.
“I wouldn’t call this a housing bubble because the demand for homes is truly there and the buyers can afford these high prices,” said Redfin Chief Economist Daryl Fairweather. “Bubbles burst; I don’t see that happening.”
Instead, Fairweather believes that as the U.S. reaches herd immunity from COVID-19 and the economy rebounds, the demand and home prices will slowly begin to come down. “That’s because mortgage rates will make buying a home more expensive, and Americans will have more options for how to spend their money. Instead of spending on homes, Americans will want to spend on activities like vacations, parties, and dining.”
The most important takeaway, if you are currently house-hunting, is don’t buy more than you can’t afford. It’s also important to work with a real estate agent who has your best interest in mind and a deep understanding of current market conditions. They can help you navigate the ins and outs of this tricky seller’s market.
Read full article: Redfin