Housing bubble? What housing bubble?
Five reasons why the real estate market should remain strong this year
By John Elias
The median price of an existing home, per the National Association of Realtors, rose 16.9% in 2021. But that leads many to ask: Are we in a housing bubble?
To understand the question, you need to know what makes a housing bubble. A bubble exists when the laws of supply and demand are inconsistent. When you have high demand and low supply, prices increase at a record pace. The fear is that the fundamentals are not sustainable. Eventually, the supply of homes rises because of the pricing; but the demand tails off, eventually causing prices to collapse and the bubble to burst.
With all the activity that has been occurring since the beginning of the pandemic, the question I hear often is: Will the market crash like it did in 2007?
While many things can factor into the equation, we currently are better situated to withstand a collapse in the market and will likely have a strong 2022 due to the following factors:
- Lending standards are stricter today. In 2007, many of the loans and houses that were lost in the housing crash were due to the availability of easy credit including adjustable-rate mortgages with teaser rates, sub-prime loans, no down-payments, and interest-only payments. Many of the loans obtained are not available today due to stricter underwriting requirements and better products offered by the financial community.
- Rents are expected to increase. With many small landlords moving out of the property rental business after experiencing a tumultuous 2020 and 2021, less properties will be available for rent. With fewer properties available and rents increasing, the number of first-time buyers will increase as it will become more affordable to purchase, long-term, than to rent.
- The job market is unique. The current job market is unlike one that we have seen in a very long time and very much different than the 2007 market. We are looking at a significant labor shortage in the United States, with rising incomes unlike the job market of 2007, which was one on long-term unemployment.
- It’s a first-time buyer’s market. The market could see a dramatic increase in homeownership as many millennials have entered the home purchase market and are now, per the National Association of Realtors, the fastest growing segment in the market. There are a variety of reasons for explaining their recent entry. But regardless of the reason, the millennial generation is a major impetus for the current boom.
- Growth continues with Hispanic homebuyers. Nationally, over 20% of the population identifies as Hispanic, yet only 1 out of 10 real estate transactions involves a Hispanic homebuyer. Latinos are the only demographic in the United States to increase their rate of homeownership for each of the past six years, according to the National Association of Hispanic Real Estate Professionals. With their growth expanding, especially among younger and first-time home purchasers, Hispanic homebuyers will continue to be a growing force in the market for years to come.
The team at Gardi, Haught, Fisher & Bhosale expects the real estate market to remain strong in 2022. Whether you are a seller or a buyer, a first-time buyer, or a seasoned real estate investor, we are uniquely qualified to guide you through the process and help you obtain your real estate and financial goals. For a free case evaluation, click on the free case evaluation below.