The media of late has been pushing the idea of a “housing bubble” and when looking at the current dynamics of the market, it is hard to believe it. Let’s break down why.
We all know back in 2006, there was a “housing bubble” that burst, so let’s compare our current state versus how the market was fairing back then.
In 2006, there was a major imbalance of very high housing inventory levels against lower levels of buyer demand. Also, homes were purchased with mortgages that had much fewer restrictions because guidelines were less strict.
Currently, when looking at the dynamics of the housing market, there is a near record low of housing inventory, approximately down about 20% since last year. Also, there is an unrelenting amount of homebuyer demand, especially at the lower end of the market. The recent July Existing Home Sales report showed that properties typically remained on the market for only 17 days! 89% of homes sold in under 30 days.
Due to this home scarcity and high levels of demand, homes have appreciated greatly in just the last year. The FHFA house price index showed homes are up 18.8% from June 2020 to June 2021 and the Case Shiller Home Price Index showed an annual increase of 18.6%. Some areas in the country are even hotter like Phoenix at 29%, San Diego at 27% and Seattle at 25%. But, even with much higher priced homes, buyers are still sopping up any inventory they can get their hands on.
In 2006 the bubble burst because there was an excess of inventory with no demand to purchase it, but the current dynamics are much different, as described. The housing market has most certainly appreciated in price, but is still heavily sought out and healthy.