With headlines that lead many people to pause their real estate plans, the question on everyone’s mind is: are we in another housing bubble? The short answer is: most experts say we are not. Many potential buyers remember the last housing bubble and feel deep concern about getting into any real estate with big changes happening in the real estate market nationwide, and we understand.
Keep reading for 2 reasons we think you do not need to worry about a housing bubble or, worse, a housing bubble burst.
1. Low inventory supports housing prices
While it is true that housing prices are decelerating, that is not the same as decreasing. In the past two years, we have seen housing prices increasing at unprecedented rates. Real estate is still appreciating, just at a more typical rate than we have grown accustomed to in recent years. Housing prices will grow at a slower rate with the higher mortgage rates we are seeing right now, but this is still a great time to buy when you consider the big picture.
Housing inventory is still low, meaning the demand continues to outpace the supply. This will keep housing prices stable for years to come, protecting buyers from a popping bubble.
If you are concerned about investing in a Mesa property today because of a bursting housing bubble like many suffered from in 2008, you can rest easy that we are not in the same scenario as we were then. From 2007 to 2010, there were far too many homes on the market, many as a result of foreclosures and short sales. This massive disparity between supply and demand resulted in rapid decreases in home values.
Keep in mind that inventory is one of the key features in the housing market, and experts expect demand to outpace supply for the next few years as we catch up from supply chain delays, labor shortages, and housing shortages that were already in place pre-pandemic.
As Odeta Kushi, Deputy Chief Economist at First American, summarizes: “The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.”
2. Mortgage lending standards have changed
If you lived through 2008, you know that many of the people who ended up in trouble with their real estate investments were the victims of fault mortgage lending practices. Mortgages were extended to people who could not afford them, and were qualified far too easily.
Mortgage lending standards have changed dramatically in the past decade to protect America from repeating this part of its history. If you qualify for a mortgage today, you have to be far more eligible to take out that loan than someone who borrowed the same amount 12 years ago was.
When lenders only extend mortgages to the most qualified borrowers, the market as a whole will see far fewer foreclosures and short sales. This protects the market from a rapid increase in inventory that would send prices plummeting, aka a burst housing bubble.
The bottom line it this: the fundamental concepts of supply and demand, couples with stricter mortgage lending standards, protect us from another housing bubble. It may cost you more in interest today to buy a property than it would have this time last year, but if you can afford the payment it is just as wise an investment today as it was then.
Investing in real estate remains one of the best ways to safeguard yourself against inflation, stabilize your housing costs, diversify your income, and build generational wealth.