Are We in a Housing Bubble?

Are we on the verge of a housing bubble? I don’t think so, and here’s why.

Are we in a housing bubble? Are home values going to come down in the future? Today I want to address these commonly asked questions from today’s consumers.

If you look at national headlines, you may see statistics that show inventory has increased by 50% in certain markets. We’ve been historically low on inventory for quite a while across the nation. If a particular market had three weeks of inventory and that increased by 50%, it would have 4.5 weeks of supply. As a reminder, a normal market has six months of supply.

Here in the Midwest, we’re fortunate that our property values aren’t skyrocketing, and we typically don’t see them drop significantly either. In fact, over the last 20 years in the Southwest Indiana market, there have only been two years where home values have gone down. One was in 2009 when values dropped by 4%, and the other was the following year when they dipped by a further 2%.

Last year, homes appreciated by 13%, and the year before that, they appreciated by 9%. All the major leaders in the mortgage and real estate industries forecast that homes will appreciate this year by somewhere between 7% and 15%. Over the next three years, those same experts say that values will rise anywhere from 20% to 45%.

So are we in a bubble like we saw back in the early 2000s? The circumstances of today’s market are completely different from what we saw back then. At that time, there were tons of homes for sale, and builders were overbuilding. A false demand was created by the mortgage industry, which gave out loans to people who couldn’t afford them—if you could fog a mirror back then, you could get pre-approved for a mortgage. When people couldn’t make their payments, they started to go into foreclosure, which only increased the supply.

Today, we don’t have nearly that much inventory, and there are very few foreclosures. Homeowners have so much value in their homes that if they fall behind on payments, they can just sell their house and use the equity to buy a smaller house or rent a home.

"Our market is completely different from what we saw during the last housing crisis."

Will home value go down over the next few years? I don’t think so. Interest rates will continue to rise, which will push some buyers out of the market. However, supply is still so low that interest rates won’t affect values very much.

I can’t tell you what the future will bring, but if you’re considering buying or selling a home, now is the time to do it. Buyers should lock in a low rate and price before they get any higher, and sellers should list their homes before even more buyers are priced out of the market.

If you need help with buying or selling or have any questions, don’t hesitate to give me a call or send me an email. I’d love to help you.

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