Popping the Housing Bubble Myth
Are we headed toward a housing bubble? Here’s why I don’t think so.
Is the housing market in a bubble that will soon pop? Many people are worried about that prospect. Ultimately, the circumstances of today’s market are completely different from what we experienced during the housing bubble that occurred between 2005 and 2008. Here are a few reasons why I don’t believe we’re heading toward a housing crash:
1. Irresponsible lending practices. Lenders qualified people who weren’t able to afford homes. Adjustable-rate mortgages were also popular then; buyers got into their ARMs with low rates, but once those rates adjusted, they couldn’t afford them anymore.
2.Homeowners today have more equity. Around 50% of homeowners today have 50% or more equity. Even if the market adjusted, they’d still have plenty of equity in their homes to provide a financial cushion. Similarly, 90% of homeowners across the nation have locked in interest rates below 5%. The issue of today’s sellers is that if they sell their current homes, they’ll have to buy another one at a higher rate than their previous house. That’s causing some sellers to hold onto their properties instead of listing. If you’re hesitant to sell for that reason, keep in mind that rates between 5.5% and 6% are still historically very low.
3.Cash buyers. There are still a lot of cash buyers in today’s market, especially in the higher price ranges. Between 50% and 70% of homes priced over $1 million are sold to cash buyers. The prevalence of cash buyers suggests that there is no bubble since there’s no urgency or fear that they’ll struggle to secure financing.
“Don’t wait to buy real estate—buy real estate, then wait.”
When people ask if now is a good time to buy a home, I like to respond with my own question: “When will you sell that new home?” If you plan to buy now and sell the home a year from now, now is probably not the best time to purchase. However, if you’re planning to hold onto the property for 10 years or more, this is definitely a great time to buy. Don’t wait to buy real estate—buy real estate, then wait.
Overall, we’re still in a very strong market with plenty of opportunities for buyers and sellers. If you’re thinking about buying or selling or have any questions about the market, don’t hesitate to give me a call or send me an email. Hope to hear from you soon!