Uncategorized July 1, 2021

Are We in a Housing Bubble?

It’s one of the many questions I answered yesterday while being interviewed on GoLocalProv during an interview about Rhode Island real estate. It’s a topic high on the radar of many buyers and sellers nationwide. For buyers who are daunted by this incredibly escalated market, many wonder if they should “wait it out” or worry they will end up “upside down” if they buy high and then the market crashes later. For sellers, they pose the question wondering if pulling the trigger now on selling is needed, before the market  “crashes.”

So what does “survey say” on the crashing of the market hypothesis?  They say “Not likely” and this gal believes it to be so.  There simply are too many factors at play that are different than when the market crashed before AND factors that show NO signs of lessening their influence.  Home prices will continue to appreciate and here’s why.  What is playing out right now in markets nationwide comes down to supply and demand. In a nutshell, ( or a Rhody clamshell)  we have a demand that is SKY high for housing and an inventory that is extremely depleted. As I learned in Econ 101 at Brown, low supply and high demand escalates prices. It’s that simple. And when the need is multilayered and being fortified by a constant element that shows no sign of waning? Well that supports the upward trajectory of appreciation which looks to stay very much on course.

So what are the factors at play that thwart the notion that the market will “crash?” Let’s drill down on it…..

  1. The strong demand for housing looks sustainable. Even before the pandemic, demographic shifts and historically low mortgage rates had pushed demand to high levels. Dare I mention the 3 million unit shortfall we had in the US in terms of housing units as we entered 2020 and the multitude of factors impeding new construction? To compound the impact of the lack of housing issue is the fact that consumer surveys have recently shown that household buying intentions are the highest they have been in 20 years.
  2. Millennials, who are the biggest demographic cohort in history, are entering their 3rd decade which is the PEAK household- formation and home-buying stage of life. They want and need homes; larger homes that support families and yards for the dog that so many adopted during Covid. They need to leave the apartment they’ve rented or that first starter home and buy a larger home. This incredible demographic tailwind “fueled ” by the Millennial migration to homes in the burbs is placing a HUGE demand on housing supply nationwide.
  3. Tight mortgage lending standards are in place which bode well for home prices.  Buyers are put through more rigorous standards and regulations now, vs the precursors of the crashes before and thus are well fortified and “fit” to successfully finance their home purchase.

So while the predicted uptick in interest rates could slow the level of appreciation the upward trajectory remains very much on course. If you have questions about the market or how you can successfully play a role IN it, please do reach on out. I am here to help!