Are we in a housing bubble?

One of the most common questions we are asked right now is are we in a housing bubble? The “warning signs” look familiar.

Home prices have been rising for more than 2 years. Both buyers & sellers are worried that the market is just “too good to be true.” Our take: no we aren’t in a housing bubble. Let’s take a look at 3 key factors that suggest we’re not in a housing bubble so you can calm your fears about the Tampa Bay market. Here's why we aren't in a housing bubble:

# 1: Housing supply

Last year, home values appreciated an average of 15% across the nation. In 2022 it is expected to be closer to 20% in the Tampa Bay area. Buyers are worried that home prices are too high and that depreciation is likely to follow. Sellers are worried they will sell and won’t be able to find another place to live.

Not the case. The major factor driving up home values is supply and demand. Low inventory is absolutely leading the charge in this hot market. A balanced real estate market’s inventory sits around 6 months. Today’s current market is at less than 2 months, a historically low amount of homes for sale. On top of that, inventory has slowly been declining for years. For comparison, the inventory level from 2005 and 2007 increased from 5 months to 11 months, a vast over-supply of homes that did not warrant the price appreciation that went along with it.

Supply and demand has several factors: sky-high rent has people considering buying, a large influx of buyers from out-of-state and slower new construction builds available as building supplies are harder to come by and labor costs are rising with less skilled workers available.

# 2: Housing demand

During the housing boom in the mid-2000s, the buying and selling frenzy contributing to the market collapse was fueled not by financial decisions but a country-wide case of FOMO (fear of missing out) and keeping up with the Jones. The mortgage industry fed into the frenzy, making it easier for people to obtain home loans much higher than they could afford.

Today’s real estate demand, however, is a vastly different. Lending standards have become much tighter. And escalating rent has many families opting for the financial stability that homeownership offers. Buy today and your house could appreciate more than 20% in a year. That’s a sound investment.

These factors make purchasing a home today a good financial decision. So, not only is the demand very real, it’s also very smart.

# 3: Equity

Following the housing and economic crash of 2008, economists and real estate industry experts have combed through data to figure out why the entire system crumbled the way it did. Most will agree that one of the biggest pieces of that equation came down to this: equity. Or in reality, a lack of it.

The mid-2000s saw a massive wave of homeowners cashing out the equity in their homes. In short, they were using their homes like ATMs to afford some of the finer things in life. This led to a lot of negative equity situations: where the amount someone owed on their home was far more than what their house was worth. Many foreclosures and short-sales followed, depreciating home values nationwide.

Today is a much different equity picture. Cash-out refinance volume over the last three years is less than a third of what it was compared to the three years before the crash. Plus, escalating appreciation meant that homeowners gained an average of $56,700 in equity in 2021 alone. As prices continue to rise, equity will too.

This positive equity perspective puts the current housing market in a much stronger place, minimizing risk of foreclosure and stabilizing home values across the U.S.

Bottom line

The most important role of us as real estate agents is to be the educator YOU and guide you through the process. What that really means is knowing the market trends. Knowing how to get your offer accepted. Knowing how to get your house sold while making sure you have another place to live.

At the end of the day, knowledge is the most powerful tool you have in navigating this market! Reach out. We want to help!

Content: KCM