Is the housing market over inflated? Are we headed for a bubble? If you are asking these questions, you aren’t alone. Escalating prices and huge gains are prompting all of us to question how long the market will continue to see such rapid price appreciation.
Looking to the Past
We all remember what happened in 2006. Housing prices peaked and then started to decline. Foreclosure rates increased. And, then the credit crisis hit. It was a mess and we haven’t forgotten. Fears over a repeat are understandable. People lost their homes, their credit, their livelihoods. But, that was then and is this is now.
The Difference in the Market Today
The mistake that fueled the past housing bubble had a lot to do with the rush to lend money to homebuyers without regard for their ability to pay. That is no longer the case. Credit remains tight and lenders aren’t issuing risky loans. According to Lawrence Yun, chief economist of the National Association of Realtors, “This is not a bubble. It is simply lack of supply.” Today’s hot market is primarily based on one key factor — big demand and little supply. According to one Morgan Stanley strategist, we have a sustainable and sturdy foundation. I like the sound of that. A lot.
Of course, a sturdy and sustainable foundation does not mean that price appreciation will maintain its current pace. Interest rate increases and barriers to affordability as prices continue to escalate, may slow things down. But, a bubble? I don’t see any major bursts in the near future and nor do the powers to be. Of course, only time will tell.