Are We Heading for a Housing Bubble?

Here are five main factors that indicate why we aren’t in a housing bubble.

The main question I get asked many times daily is: Are we in a housing bubble? I can’t predict the future (and if I could, I’d be in a different line of work), but there are plenty of factors that indicate the real estate market isn’t going to crash. Here are the five main factors in our market that reveal a crash isn’t imminent: 

1. Inventory. Inventory is very tight; this is the best seller’s market in U.S. history. Specifically here in the North Valley, we have less than a half-month of supply. Currently, in ZIP code 91326, we only have 18 homes for sale out of 13,000+ single-family units. In 2007 and 2008 there were around five months of supply on the market.

2. Pent-up buyer demand. This is one of the reasons inventory won’t be significantly changing for a while. We had quite a bit of buyer demand even before the pandemic, so with the number of millennials looking to buy and COVID-19 causing people to reevaluate what’s essential to them in a home, we’re seeing an increase in demand.

“With all these variables, it’s very unlikely that we’ll find ourselves in a bubble that will crash.”

3. Equity. Right now, 17.8 million homeowners have a decent amount of equity in their homes, which is a large improvement from the early 2000s before the last financial mortgage crash. This leads me to my next point…

4. Real borrowers. Much of the equity people have has to do with having loans they can truly afford. Back before the last bubble burst, a slew of people getting mortgages shouldn’t have been able to qualify for one. With today’s stringent standards, it’s much more difficult to qualify for a loan, so the people who are getting financing genuinely qualify and can make their payments.

5. The price of lumber. Not enough people are talking about this: Homebuilders need to outpace the demand for new housing. That’s not going to happen anytime soon for the pure fact that the price of lumber has risen over 200% within the last 12 months.

With all these variables, it’s very unlikely that we’ll find ourselves in a bubble that will crash, though we may see a small market correction. 

If you have further questions about these points or concerning another real estate matter, give us a call or send an email. We would love to help you.