Another reason I don't believe we are in a bubble is the supply and demand nature of housing and real estate.
Right now we have problems in both regards.
Demand is high AND we have pent up demand: 'Pent Up Demand' When the demand for a service or product is unusually strong. Pent up demand is used by economists to describe the general public's strong return to consumerism following a period of decreased spending (I.e. crash of 2008 - 2012). But we also have “regular” demand. A certain number of people buy homes every year and when inventory is lacking it starts to clog up the buyer pipeline.
At the same time we have a lack of supply as indicated by multiple offers, a short ‘days on market’* AND 2 to 3 months of supply**. Many people are not moving for a variety of reasons so the precious little inventory we have goes fast!
Until we have more housing (and I mean a lot) OR prices rise beyond most buyer's ability to buy, we will have this dynamic.
Do you see how important it is to understand what is happening in the market? Once you have this knowledge you can make these decisions on your own. Everyone has their own risk tolerance so learning is key.
*Days on market – the number of days from the listing of a home. For example a home is listed on December 1st and goes into escrow December 10th – 10 days on market. In a heated market, homes go into escrow fast so less than 20 days is common.
**Months of supply – if no other homes are listed for sale, the number of months all the homes currently for sale will sell out. For example there are 20 homes for sale in one neighborhood with 5 selling each month, the neighborhood has 4 months of supply. Anything below 3 months is a seller’s market, beyond 6 months is a buyer’s market. Between the two is a balanced market.
I am asked this question constantly and often times it’s the first question. I have many thoughts on it but it all goes back to education and understanding real estate and its cycles.
First, and because of Dodd Frank, lenders are lending to the most credit worthy borrowers. The “best of the best” including those with high credit scores, high income and down payment monies are qualifying. For this reason I don’t see the likelihood that these homeowners will default and walk away from their homes. They will likely be able to weather any downturn in prices because of their financial situation. It is not necessarily values dropping but values dropping and people selling en masse which then can start a serious drop in prices.
The crash of 2008 was in large measure due to the fact that banks were lending to everyone. There was loan fraud on a scale we have never seen before in this country. The situation is completely different now. This is one of the main reasons I don't foresee a "large" correction coming.
Crissi Avila will teach you how to buy smart. We’ll look at location, development, and turnover so you can spot opportunities long before most even start considering them.