Some people have recently asked me if this crazy real estate market we are in is a “Bubble” and are wondering if it will burst?
That’s a great question and one that is totally understandable given that we are just now coming out of the Great Recession and that the cause of that was the bursting of a real estate bubble.
To answer this question, you really need to dig into the root causes of the last bubble bursting. Looking back at those times in 2005-2008, it was easy to get a mortgage. In fact, it was so easy that a lot of people got in way over their heads in debt and when the economy shifted, it caused a catastrophic failure on a mass basis.
Today, getting a mortgage is not easy. It’s actually pretty difficult. If you ask someone who has recently purchased or refinanced their home, they will tell you that it was a pain in the back side and that the bank asked for documentation on even little things – (Side note: I recently had a client have to get a letter from his grandmother documenting the fact that the $50 she gave him for his birthday was in fact a gift and not a loan). Because of this scrutiny, banks are making loans to people who can actually afford them and this is resulting in the default rate on first mortgages returning to its pre-recession rate.
Another factor to consider is jobs. During the recession, a lot of people lost their jobs and that compounded the fact that they were over extended on mortgage debt. As of the last jobs report in April, the unemployment rate was extremely low and Lawrence Yun, the National Association of Realtors Chief Economist had this to say:
“This good jobs report for April should dispel any notion of a potential economic recession. Moreover, the continuing low levels of people filing for unemployment checks, as well as the high numbers of job openings, do point towards further job additions in upcoming months. The Federal Reserve will surely raise interest rates two more times before the year ends. The rate hikes are due to continuous improvement in economic conditions.”
Based on those two items of data, we are just in a robust economy that is predicted to grow. The fact that there aren’t enough homes to satisfy the demand is why prices are going up and the market is crazy. I do think that the market will slow somewhat in the next year, especially if we get the 2 interest rate hikes from the Federal Reserve to which Mr. Yun refers because that will increase the cost of purchasing a home for those who need to get a mortgage.
In summary, in my opinion, no, the bubble is not going to burst. It’s not going to burst because we’re not in a bubble. We’re just in a rapid time of growth. I predict that this growth will continue for some time in the future. So, if you are even thinking about buying, selling, or investing in the next year, give us a call, we can help! …Helping YOU is What We’re Here to Do!