Two Reasons Why Today’s Housing Market Isn’t a Bubble

<article class="post-351800 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-351800"><span class="entry-date">June 27, 2022</span><div class="entry-header center-block text-center"><h1 class="entry-title">Two Reasons Why Today’s Housing Market Isn’t a Bubble</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=Two+Reasons+Why+Today%E2%80%99s+Housing+Market+Isn%E2%80%99t+a+Bubble&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Ftwo-reasons-why-todays-housing-market-isnt-a-bubble%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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<p><img alt="Two Reasons Why Today’s Housing Market Isn’t a Bubble | Simplifying The Market" class="webfeedsFeaturedVisual wp-post-image" decoding="async" link_thumbnail="" loading="lazy" sizes="auto, (max-width: 549px) 100vw, 549px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130531/20220627-KCM-Share-549×300.jpg" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130531/20220627-KCM-Share-549×300.jpg 549w, https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130531/20220627-KCM-Share.jpg 750w" style="display: block; margin-bottom: 5px; clear:both;max-width: 100%;" width="358"/></p>
<p>You may be reading headlines and hearing talk about a potential housing bubble or a crash, but it’s important to understand that the data and expert opinions tell a different story. A <a href="https://pulsenomics.com/surveys/#home-price-expectations">recent survey</a> from <em>Pulsenomics</em> asked over one hundred housing market experts and real estate economists if they believe the housing market is in a <a href="https://www.simplifyingthemarket.com/2022/04/21/why-this-housing-market-is-not-a-bubble-ready-to-pop/?a=712984-fa409495d5d70154d03a25e81e9540e2">bubble</a>. The results indicate most experts don’t think that’s the case <em>(see graph below)</em>:<span id="more-46728"></span></p>
<p><a href="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130532/20220627-MEM-Eng-1.png"><img alt="Two Reasons Why Today’s Housing Market Isn’t a Bubble | Simplifying The Market" class="aligncenter wp-image-46732" decoding="async" height="488" loading="lazy" sizes="auto, (max-width: 650px) 100vw, 650px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130532/20220627-MEM-Eng-1.png" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130532/20220627-MEM-Eng-1.png 960w, https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130532/20220627-MEM-Eng-1-400×300.png 400w" width="650"/></a><strong>As the graph shows, a strong majority (60%) said the real estate market is not currently in a bubble. </strong>In the same survey, experts give the following reasons why this isn’t like 2008:</p>
<ul>
<li>The recent growth in <a href="https://www.simplifyingthemarket.com/2022/06/16/home-price-deceleration-doesnt-mean-home-price-depreciation/?a=712984-fa409495d5d70154d03a25e81e9540e2">home prices</a> is because of demographics and low inventory</li>
<li>Credit risks are low because underwriting and <a href="https://www.simplifyingthemarket.com/2022/06/01/why-home-loans-today-arent-what-they-were-in-the-past/?a=712984-fa409495d5d70154d03a25e81e9540e2">lending standards</a> are sound</li>
</ul>
<p>If you’re concerned a crash may be coming, here’s a deep dive into those two key factors that should help ease your concerns.</p>
<h4><strong>1. Low Housing Inventory Is Causing Home Prices To Rise</strong></h4>
<p>The supply of homes available for sale needed to sustain a normal real estate market is approximately <a href="https://www.simplifyingthemarket.com/2022/04/28/what-you-need-to-know-about-selling-in-a-sellers-market/?a=712984-fa409495d5d70154d03a25e81e9540e2">six months</a>. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.</p>
<p>As the graph below shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and <a href="https://www.simplifyingthemarket.com/2022/05/12/what-you-actually-need-to-know-about-the-number-of-foreclosures-in-todays-housing-market/?a=712984-fa409495d5d70154d03a25e81e9540e2">foreclosures</a>), and that caused prices to tumble. Today, there’s still a <a href="https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales">shortage of inventory</a>, which is causing ongoing home price appreciation <em>(see graph below):</em></p>
<p><a href="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130528/20220627-MEM-Eng-2.png"><img alt="Two Reasons Why Today’s Housing Market Isn’t a Bubble | Simplifying The Market" class="aligncenter wp-image-46729" decoding="async" height="488" loading="lazy" sizes="auto, (max-width: 650px) 100vw, 650px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130528/20220627-MEM-Eng-2.png" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130528/20220627-MEM-Eng-2.png 960w, https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130528/20220627-MEM-Eng-2-400×300.png 400w" width="650"/></a>Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist at <em>First American, </em><a href="https://www.realtor.com/news/trends/housing-market-showing-signs-of-correction-what-buyers-sellers-need-to-know/">explains</a>:</p>
<blockquote>
<p><em>“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.”</em></p>
</blockquote>
<h4><strong>2. Mortgage Lending Standards Today Are Nothing Like the Last Time</strong></h4>
<p>During the housing bubble, it was much easier to get a mortgage than it is today. Here’s a graph showing the <a href="https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2022q1.pdf">mortgage volume</a> issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the years after:</p>
<p><a href="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130529/20220627-MEM-Eng-3.png"><img alt="Two Reasons Why Today’s Housing Market Isn’t a Bubble | Simplifying The Market" class="aligncenter wp-image-46730" decoding="async" height="488" loading="lazy" sizes="auto, (max-width: 650px) 100vw, 650px" src="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130529/20220627-MEM-Eng-3.png" srcset="https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130529/20220627-MEM-Eng-3.png 960w, https://files.simplifyingthemarket.com/wp-content/uploads/2022/06/24130529/20220627-MEM-Eng-3-400×300.png 400w" width="650"/></a>This graph helps show one element of why mortgage standards are nothing like they were the last time. Purchasers who acquired a mortgage over the last decade are much more qualified than they were in the years leading up to the crash. <em>Realtor.com </em><a href="https://www.realtor.com/news/trends/housing-market-showing-signs-of-correction-what-buyers-sellers-need-to-know/">notes</a>:</p>
<blockquote>
<p><em>“<strong>. . . Lenders are giving mortgages only to the most qualified borrowers. </strong>These buyers are less likely to wind up in foreclosure.”</em></p>
</blockquote>
<p><strong>Bottom Line</strong></p>
<p>A majority of experts agree we’re not in a housing bubble. That’s because home price growth is backed by strong housing market fundamentals and lending standards are much tighter today. If you have questions, let’s connect to discuss why today’s housing market is nothing like 2008.</p>
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