Unmatched competition, sky-high housing prices, and a seemingly endless surge in demand — the symptoms of the current market seem eerily familiar to some real estate experts.
Murmurs of a housing bubble have been heard throughout the country, from the intense market in Seattle to the building empire in Florida.
It’s a term that causes everyone to halt in their footsteps, as they are wary of repeating the same mistakes of the past. When the housing bubble that formed from 2000 to 2006 burst, it kicked off the economic downturn now referred to as the Great Recession.
So, given the nature of the current market, it begs to ask the question: Is this another U.S. housing bubble?
First, let’s remember what exactly this phenomenon is:
A housing bubble is a typical economic occurrence that happens occasionally when there is increased excitement and vitality in the real estate market. Bubbles can form in local, regional, and national markets and often occur when there’s a rise in demand for housing and the expectation of continued growth.
Symptoms of a Housing Bubble
A market is categorized as a bubble when the following conditions occur:
- Prices are rising — and fast. In a drop, housing prices will increase faster than salaries and the cost of living.
- Interest rates begin to rise. When interest rates start to increase, demand for housing can slow down. Yet, during a bubble, the prices of homes will keep growing.
- Fewer home buyers can use cash. Most homeowners must take out loans during a bubble period to purchase their homes. Traditional down payments and cash offers are few and far between.
- Creative financing is available. As more people require credit to take out loans during a bubble, some loan officers offer innovative financing options that may not be as fiscally sound as traditional ones.
Symptoms of the Current Housing Market
The real estate market across the country is showing the following signs:
- Rising property values and home prices. Many bought a new home, which is driving up prices.
- Low inventory levels. These low levels have plagued much of the country for the last year, forcing buyers to become more competitive and even excluding some buyers from finalizing a purchase.
- Minimal leverage. Most buyers who can get into a new home have had to come with cash ready to hand over. Significant down payments and complete cash offers are standard in this market.
Is This a Housing Bubble?
The short answer is no; this is not a housing bubble.
While it’s natural to feel uneasy about the striking similarities, a few distinct differences separated this market from the market 15 years ago. Credit is still challenging, inventory levels are low, and the demand is driven by economic growth and increased job opportunities.
According to the National Association of Realtors, the current national real estate market is slowing down.
Monthly and pending sales are declining, and many experts feel that 2017 will not live up to the expectations that real estate agents and investors had for it at the beginning of the year.
However, the supposed downturn is not a bubble that is bursting…
Instead, it’s a sign that the market will balance itself, as in regular economic cycles.