Are we in a housing bubble?…
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In 2021, we’ve seen incredible home price appreciation. According to the latest Home Price Index from CoreLogic, home values have skyrocketed by 18.1% compared to this time last year.
While everyone seems to have an opinion on whether the housing market is going to absolutely plummet or soar, let’s focus on what the experts and the data have to say.
Expert Opinion #1
According to the Joint Center for Housing Studies in their The State of the Nation’s Housing 2021 report:
…conditions today are quite different than in the early 2000s, particularly in terms of credit availability. The current climb in house prices instead reflects strong demand amid tight supply, helped along by record-low interest rates. - The Joint Center for Housing Studies
Expert Opinion #2
The Chief U.S. Economist at BBVA, Nathaniel Karp, says:
The housing market is in line with fundamentals as interest rates are attractive and incomes are high due to fiscal stimulus, making debt servicing relatively affordable and allowing buyers to qualify for larger mortgages. Underwriting standards are still strong, so there is little risk of a bubble developing. - Nathaniel Karp
Expert Opinion #3
If we look to Mark Fleming, Chief Economist at First American, he says that:
Looking back at the bubble years, house prices exceeded house-buying power in 2006 nationally, but today house-buying power is nearly twice as high as the median sale price nationally… Many find it hard to believe, but housing is actually undervalued in most markets and the gap between house-buying power and sale prices indicates there’s room for further house price growth in the months to come. - Mark Fleming
Conor’s Conclusion
To compare the current market to 2008 and argue that there is going to be an equivalent collapse has no data to back it as of yet. While we have had an incredibly crazy seller’s market and are starting to see a little bit more inventory hit the market and some buyers leave the market due to multiple-offer fatigue, it’s only shifting slightly towards a more balanced market. We are still a far ways away from anything close to a “balanced” market where it neither distinctly favors the buyer or the seller.
My prediction is that we will continue to still see a very hot sellers’ market moving into 2022 and throughout 2022. Rising interest rates, increased inventory, and reduced buyer demand will slow the market down to more reasonable and sustainable growth.
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