Are we going into the next Housing Bubble?

Are we going into the next housing bubble?

Probably not, and here's why according to a recent article in the National Association of REALTORS® Magazine:

For one, instead of a housing surplus, like there was in 2008, the nation is facing a severe inventory shortage. Homebuilders put more than 2 million housing units a year into the pipeline in the years leading up to the 2008 bubble and were overbuilding at the time, notes Lawrence Yun, chief economist for the National Association of REALTORS®. “Today, it is exactly the opposite,” he says. “The country is still facing historically low inventory levels and low rental vacancy rates that are the consequences of multiple years of underproduction.”

  • · Mortgages are structured differently. The kind of subprime lending that was blamed for the 2008 crash is a much smaller and more regulated part of the market today. “The lenders and regulators do not want to make the same mistake of lending to people who cannot repay the mortgage,” Yun says. “Therefore, the credit scores of mortgage approvals have been high.” The typical credit score for a mortgage borrower was a near-record 776 in the first quarter of 2022. During the Great Recession, it dipped to 707. Plus, for adjustable-rate mortgages, which have fluctuating interest rates over a set period of years, borrowers nowadays must show they can afford the fully reset rate, says Glenn Brunker, president of mortgage servicer Ally Homes.
  • · Housing inventories remain low. The nation is roughly 3 million homes short of meeting buyer demand, Freddie Mac estimates. NAR has called for a “once-in-a-generation response” to the supply crisis. About 1.2 million single-family housing starts are predicted for 2023—still far from the 2 million–plus in the early 2000s, according to Statista data. Yun says housing inventory likely will remain an issue for years to come.
  • · Buyer demand remains high. Purchasing a house was the top accomplishment postgraduate students aspire to achieve—more than getting a successful job, getting married, having a baby, or traveling, according to a Grand Canyon University survey. “There is still too much real demand and too little inventory,” McGrath says about the state of the housing market. “Affordability has taken a hit with higher [mortgage] rates, but people still want to buy homes.”
  • · Real estate can be a hedge against inflation. Locking in a fixed-rate mortgage now will protect homeowners against future increases in housing prices. Such an opportunity doesn’t exist when you’re renting, and rental prices have climbed drastically over the last year. Plus, renting doesn’t offer the ability to build equity.
  • · A market correction is not the same as a crash. The housing market has showed recent signs of slowing. But “based on present evidence, there is no expectation that a fallout from a housing correction would be comparable to the 2007–09 global financial crisis in terms of magnitude or macroeconomic gravity,” a group of Dallas Fed economists wrote this spring. 

Homebuying costs have increased $800 every month this year due to higher mortgage rates and home prices, according to Nadia Evangelou, NAR’s senior economist and director of forecasting. The 30-year fixed-rate mortgage, which averaged 2.9% just a year ago, was at 5.51% for the week ending July 14, according to Freddie Mac.

“Rising interest rates and buyer fatigue from bidding wars have caused the market to stabilize and return closer to normal, but the market still favors home sellers,” says Scott Orich, a sales associate with Flyhomes in San Mateo, Calif.

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