Is This Another Housing Bubble?

Thanks to long-lasting low mortgage interest rates and first-time home buyers, the housing market has remained hot despite the influence of the pandemic. Unfortunately, high buyer demand has resulted in prices continuing to rise, leading many people to question if we’re experiencing another housing bubble.

The Great Recession of the mid-2000’s is still fresh in everyone’s mind, when swiftly rising home prices came to an abrupt halt, values plummeted and millions of people lost their homes. So, hearing the phrase “housing bubble,” surely makes folks question if we’re headed for another financial disaster.

But the conditions driving the housing market today are not the same as they were before the Great Recession.

Housing bubbles usually start with an increase in demand, fused with limited supply which takes a while to replenish. Speculators pour money into the market, driving up demand even more. At some point, the demand decreases or deteriorates while the supply continues to increase, resulting in a sharp drop in prices.

Mortgage rates add another element. Low rates boost demand because it becomes more affordable to have a mortgage. When rates and inventory are low, multiple buyers end up contending with each other for new listings, which drives prices up even more.

During the housing bubble of the 2000’s, relaxed mortgage lending guidelines played a big role. Many loans were made to subprime borrowers who couldn’t afford to repay them. In many cases no documentation was required to prove that the borrower could afford the mortgage and almost anyone could qualify for a loan.

Since then, standards have been raised and borrowers must undergo rigorous income and asset checks to obtain a mortgage. An entirely new regulatory agency, the Consumer Financial Protection Bureau, was created to enforce this new regulatory framework.

Furthermore, current demand is not the result of easy lending methods. It is the result of natural market forces of supply and demand. A number of experts believe new home construction will help ease demand in the near future.

Another reason most experts agree we won’t experience a housing crash like the Great Recession is homeowners are more equity-rich than they were before. American homeowners are enjoying housing stability and growth, allowing them to build up home equity reserves. In the third quarter of 2020, the average family with a mortgage had $194,000 in home equity, and the average homeowner gained approximately $26,300 in equity over the course of the year. Whereas in 2009 nearly a quarter of the nation’s mortgaged homes were valued for less than the amount their owners actually owed on those mortgages.

Still, some people are worried about the housing market collapsing because supply is inadequate and home prices continue increasing, much faster than salaries.

If we are in a housing bubble, the best thing you can do is avoid getting stuck with a mortgage you can’t afford. Before buying a home, be certain of how much you can afford and avoid risky loans.

If homeownership is on your mind, The Platinum Group Realtors are the local experts that can help you determine if it’s right for you.

With the experience and skills necessary to guide you, the team at Platinum Group approaches each individual client proficiently to ensure that all decisions made are in your best interest. During demanding times like these, a trusted real estate professional can help ensure your experience is as successful as possible.  The Platinum Group, Realtors have worked for years at growing and refining their skills, and are ready to share their expertise, knowledge on market conditions, and accomplished negotiation techniques.

For a no-obligation consultation, call today: (719) 536-4478 or visit PlatinumHomesSales.com.



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