Diablo Gazette September 2021
This Is NOT a Bubble, Is It?
While there are many differences from the 2007-2008 real estate bubble, some fear that we are on that path again.
The truth is that the income of the buyers cannot keep up with the high rise in prices at some point.
That will result in a leveling off in numbers of offers for each home as those who can no longer afford them drop out of the competition. Make sense?
Interest rates are also a factor. As prices are high now, the interest rates under 4% and the resurgence of Stated Income Loans are allowing folks to purchase more expensive homes with reasonable payments based on their income. As interest rates rise, what buyers can afford reduces, thus a price leveling off or reduction takes place to get those homes sold.
What does all this mean? Just as in the past 5 years, it could mean buy now and secure a stable, lower house payment for the home you want to stay in. This in part may be why there are fewer homes on the market to buy.
Lower inventory could be a result of the refinance market providing folks lower mortgage payments on their current homes, resulting in a decision to stay in their homes for the long term.
I have heard many say they could not afford to purchase the home they live in today. The refinance has reduced their payments and keeps them in a home they may love.
Some reasons National Association of Realtors and other real estate data sources say it may not be a bubble, and different than the 2007 market are as follows:
LOW INVENTORY – Inventory of homes on the market: 2007 - 4 million, 2021 - 1.03 million.
FIXED RATE MORTGAGES - Pre2007 there were no qualifying loans, short term adjustable rate loans, and other mortgage products that led to fraud and folks who could not afford homes but purchased anyway. Today a 30-year fixed rate mortgage can be under 4% with good credit and lender qualification.
FORECLOSURE RATES – Because of the loans noted above, there was a high rate of foreclosures and short sales (where the mortgage payoff is less than what is owed on the mortgage).
In March of 2008, there were 234,685 foreclosure filings. Some were due to the adjustable rate mortgages resetting people could not afford the new payment. However, in March 2021 there were only 11,880 foreclosure filings.
Time will tell of course. It is much easier to look back and say what happened, but it may not be a Bubble, just a leveling off and/or a market adjustment that is coming. We are not likely to see foreclosures and short sales to the degree that happened after the 2007-2008 market. Folks are being thoughtful about what they buy and buying within their means. These are all healthy signs for the market.
IF you are ready to buy or sell, or just looking for more real estate market insights, give me a call. I’m happy to answer any questions, anytime. Happy House hunting.
