The Real Estate Market Isn’t in a Bubble
The soaring housing market is prompting more “bubble” fears in some corners, but economists say the housing market isn’t getting overinflated: it’s just too much demand and too little supply.
“We have strong conviction that we are not experiencing a bubble in U.S. housing,” Vishwanath Tirupattur, a Morgan Stanley strategist, wrote in a note to clients this week.
Lawrence Yun, chief economist of the National Association of Realtors®, agrees. He told Axios last month: “This is not a bubble. It is simply lack of supply.”
Morgan Stanley points out that this isn’t 2006.
Housing inventories are low, credit remains tight, and lenders aren’t issuing risky loans – mortgages with introductory periods, teaser rates or balloon payments. These comprised about 40% of the mortgage market in 2004-2006 but are only 2% today.
But will prices continue to rise?
“We are not at all suggesting that home price appreciation will maintain its current torrid pace,” Tirupattur writes. “Home prices will continue to rise, but more gradually.”
The big unknown is supply. At the end of March, according to the NAR, there were just over 1 million homes for sale nationwide. That compares with July 2007 when there were 4 million for sale!
In Will the Housing Market Frenzy Die Down? That Depends on Sellers I quoted a survey from realtor.com suggesting that about 10% of current homeowners plan to put their homes on the market this year, more than half of which are more affordably priced, while an additional 16% expect to list their properties within the next two to three years.
The three most important factors in a home’s desirability are: location, the flow of the house (does it work?) and the condition. You can’t change the location, while changing the flow can be complicated and expensive. The condition can be changed which is why it is the third factor.
In the housing market, two properties which look similar from the outside can be vastly different inside. This is what makes real estate both fascinating and frustrating.
In a strong market, houses which do not score so well in all three categories do sell. Over the years, I have often looked at houses and thought, “you need to sell this in a bull market.” In today’s hot market, houses that “tick all the boxes” and are seen by buyers as their “for ever” home are likely to continue to see fierce bidding wars, while those that fall short in some way may still sell, but may not see such aggressive bidding.
So is it just location, location, location? I think flow is also really important. I recently looked at a house for a buyer: it was almost perfect in terms of location and condition – but it did not flow inside and we just could not figure out an – affordable – way to change the lay out.
If you are buying an interim house – one for a few years or as a way to get a foot in a particular market – then you can overlook (or rather not be put off) by some faults. But for the “for ever” house; it should tick all the boxes. And when you find one? You can expect fierce competition. That is unlikely to change any time soon.
Market Analyst | Team Harborside | teamharborside.com
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