The rise of demand and price hikes when it comes to housing since the health crisis started in America has created worries of a bubble. Many people believe we're in one, while some say we're not. For now, it seems that the latter is right.
What Does 'Housing Bubble' Mean?
Housing Bubble means there is low supply and a high demand. When these 2 are combined, they drive prices beyond what is normally indicated as 'sustainable' by market standards.
In time, supply takes over and the demand becomes smaller, causing prices to fall and the bubble to 'burst'.
Things can happen fast and yet have long-term ramifications. Prior to the 2007 housing crisis, there was also a buildup in demand and increasing home prices.
Although there are similarities with what happened then and what is happening today, there are also reasons to say that we are not (or at least not yet) in a housing bubble.
3 Reasons Why 2022 Isn’t the 2007 Housing Bubble
1. Credit Standards Are Higher Now
Deflation of the housing market may slow down a bit, as there are stricter lending standards today.
When the housing market collapsed last time, easy credit was extended to those who couldn't really afford. This caused a huge loss of homes and money to investors, when the underlying loans were no longer being paid.
With the current credit standards, lenders and investors want to ensure as much as possible that people can afford mortgage payments before giving them properties.
2. Years of Demand
When the housing market collapsed, building activities almost came to a halt. Years of underbuilding created more housing shortages in the U.S. Investors are still trying to catch-up to housing market demands, which might be hard to fulfill if the demand continues to increase.
3. Migration Patterns
People living in coastal cities are moving into the places with warmer climates. Easy access to physical amenities, health facilities and care centers, as well as beach, parks, mountains, and other outdoor areas is what most people want today. Of course, coastal cities are never going away as there are people who will also prefer them, but there’s definitely a noticeable dispersion in population these days as compared to before.
In fact more companies are looking into getting prime offices near coastal markets once again, as they know the benefits of having people in one place. By providing people's needs and considering their welfare such as offering gym access, lodging, food, and other amenities, it's easier to draw them back to the office.
Are We in a Bubble?
It's important to keep in mind that anything can happen. For now, it appears that we are not in a bubble and the demand is incredibly high. If you think today is the best time to sell or invest in a property, you are on the right track.
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