Housing Bubble Facts vs. Fiction
There continues to be talk of a “bubble” within the housing market. I’ve talked about it a bit, but I think it’s worth re-addressing as I realize there’s a lot of conflicting information out there.
So firstly, how would we define a bubble as it relates to real estate?
According to Bankrate:
A housing bubble, also sometimes referred to as a “real estate bubble,” occurs when the price of housing rises at a rapid pace, driven by an increase in demand, limited supply and emotional buying. Once speculators recognize that housing prices are on the rise, they enter the market as well, further driving up demand. The phenomenon is called a bubble because inevitably, at some point, it will burst.
So then, what does it mean when that bubble “bursts”? Bankrate continues:
[When] the bubble bursts, home values plummet.
Straightforward enough. With that description alone, who wouldn’t think we’re burst-bound? But the thing is, experts continue to insist that we are NOT experiencing a bubble that is headed for a crash. While there are many factors contributing to this thought, it can really be boiled down to 3 main points:
High demand
Low supply
More stringent lending standards
Demand for real estate is exceedingly, and genuinely, high.
More Americans than ever have identified real estate as the best long-term investment available. Furthermore, rental fees continues to increase. The pandemic-induced trend of working from home has encouraged more Americans to move to Maine than any other state. And to top it off, the largest generation to date, Millennials, are coming into peak home-buying age. That’s a LOT of combined pressure on Maine’s real estate market.
In addition to unprecedented demand, the supply of available homes, though slowly rebounding, is incredibly low. This is especially true as compared to the 2008 housing crash.
There has been a shift in our senior population to age in place and older owners are remaining in their homes longer than ever. New construction rates have been insufficient for over a decade. In addition, low inventory is in itself encouraging prospective sellers to stay put. After all, if they sell, they’ll then be put in the same situation as other buyers - that is, with few options and heavy competition. It’s a cyclical trap that’s challenging to break free from.
Perhaps the most significant indicator that we are not in a real estate market similar to the previous crash is that lending standards have dramatically changed, thanks primarily to the lessons learned during said crash.
Lenders have increased their standards for buyers and are no longer making mortgages available to just about anyone - both credit scores and debt-to-incomes ratios have become more demanding. They’re also relying on more stable loan products and less on programs that could push borrowers into default (such as adjustable rate mortgages).
So then… where does this all leave us?
According to the experts:
"This is not the same market of 2008. It's no secret the housing market played a central role in the Great Recession, but this market is just fundamentally different in so many ways." - Odeta Kushi, deputy chief economist at First American
“What’s much more likely [than a market crash] is a gradual slowdown in the pace of price appreciation where home prices continue growing, just not as fast as they are now.” - Nicole Bachaud, an economist at Zillow
“Even the hottest market eventually cools. That’s the law of nature.” - Patrick Carlisle, chief market analyst at Compass
It’s safe to say that while a burst bubble isn’t what the experts are predicting, they do foresee a slowing of the market, which is exactly what is needed right now. And we’re already starting to see that shift. More listings are becoming available and buyer demand is slightly diminished as interest rates have increased, thereby forcing the homeowner dreams of many onto the back burner. We’re seeing more price corrections than we have in a long time, and some homes are sitting on the market longer. But fear not, future sellers - while you can likely expect fewer offers on your future listing, the strength of those offers remains immense.
All in all, we should expect a real estate market correction rather than a crash, which is welcome news for property buyers and sellers as well as the overall economy.
ABOUT THE AUTHOR:
Faith Irek, Sales Agent, REALTOR®, Breakwater Realty Group Co-Founder
Faith grew up on an equestrian farm outside of Portland, Maine and returned to the state after graduating from the University of New Hampshire with a Business degree. She brings over 17 years of high-level marketing and digital management experience to her real estate career and enjoys creating effective and creative promotional campaigns that support Maine homeowners in the sale of their property. Faith is equally as devoted to finding her buyer clients homes that they both adore and feel safe in, and is committed to a client-forward approach that leaves no stone unturned in pursuit of the best deal possible.
Faith resides in Falmouth with her family. She enjoys live music, kayaking, golf, and is learning to both refinish furniture and to not kill her houseplants (one of which is far easier than the other!). She will drop everything to pet a dog and will never pass up an opportunity to visit a county fair. She is the former Corporate Vice President of the Hugh O'Brian Youth Leadership Maine chapter and enjoys finding new opportunities to support her neighbors in need of a helping hand.
207.233.8177 // faith@breakwaterrealtygroup.com