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Here’s Why You Shouldn’t Worry About a Housing Bubble

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Are we in a housing bubble?


Key Point

  • 77% of homebuyers and 44% of realtors believe there is a housing bubble.
  • The root cause of soaring prices is mainly due to supply and demand.
  • In comparison, the 2007 housing crisis was fueled by predatory lending and loose lending practices.

US Home Value It has increased by more than 35% over the last two years, including a 20.9% increase over the last 12 months. In the chart of average selling prices of homes sold, the line is much steeper than the pre-crisis rise in 2008. Home prices fell 20% after peaking in the first quarter of 2007.

It’s easy to see the similarities between what’s happening in today’s housing market and the 2007 housing market crisis that caused the “Great Recession.” In a recent Redfin survey, 77% of homebuyers and 44% of realtors believe there is a housing bubble. However, there are many differences between today’s housing market and the housing market 15 years ago. That’s why experts believe you shouldn’t worry about the housing bubble.

Low supply and high demand

Low interest rates, soaring demand and declining supply have led to higher home prices. The National Association of Real Estate Agents estimates that nearly one million rental households have been priced from the housing market. as a result, First Home Buyer Dropped to 26%, the lowest level in eight years.

Moreover, Entry level house –1, 400 square feet or less in size-is 50 years low. Starter homes accounted for 40% of new construction in 1980. In 2020, starter homes accounted for only 7% of new construction. As a result, affordability of homes has become a major issue.

Pandemics, supply chain problems, and the current crisis in Ukraine are deteriorating housing inventories by extending the construction timeline. Also, the price of materials needed to build a new home has risen further. The main reasons for the dramatic rise in prices compared to the 2008 financial crisis are the low supply and high demand for new homes available.

Changes in lending practices

Simple money and subprime mortgage practices were the main drivers of rising home prices in the mid-2000s. Parliamentary Commission said the roots of the catastrophe were due to lenders taking out loans that “the borrowers couldn’t afford and could cause huge losses to investors in mortgage securities.” I decided that.

They found that underwriters were already violating loose lending standards by engaging in predatory lending, document fraud, and in some cases criminal activity. A Senate investigation concluded that high-risk loans were “the fuel that caused the financial crisis.”

Since then, the housing industry has had even more surveillance. Floating rate mortgages with balloon payments are less common. It’s much harder to guess in today’s housing market. Most mortgages today are 30-year mortgages, and there is no risk of a significant increase in payments as interest rates rise.

Will house prices go down?

There are signs of Housing market slowdown.. After a record year of home prices, home sales have begun to slow as mortgage rates rise and soaring home prices impact demand.The Federal Reserve Interest rate hike It’s been three times this year, and he said interest rates are likely to rise further later this year to slow inflation.

Home ownership is becoming out of reach for many Americans as high interest rates clash with record prices. The housing market is expected to return to pre-pandemic inventory levels by 2024. Demand remains high and home ownership is considered a hedge against inflation during periods of high inflation.

According to a paper published by Zillow, “Most existing homeowners are isolated from high mortgage rates because more than 90% of loans over the past few years have completely amortized mortgages at fixed vanilla rates. increase”. “It will keep people’s current invoices affordable and prevent a wave of foreclosures that helped the housing market run wild and plunge in 2008.”

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