When home prices are skyrocketing to new record highs it is natural to wonder if what goes up will be coming down. The question I get asked all the time is when will this happen, are we in a housing bubble, and when will it burst.
I want to assure you that our market is not in the same position it was when our market saw its last big correction. To get a better idea of what is ahead you need to look back and analyze what happened when the market crashed.
The first thing we need to look at is the availability of money for lending. During the crash anyone who could fog a mirror was approved for a loan. I still the remember the day one of my clients called me to let me know her son who had a part time job had been approved for a $400,000 home. I was mortified and disappointed that any lender would set that young man up for a guaranteed foreclosure in the future.
For a market to crash there are some fundamental things that need to be present and they are not now. For example, the kind of easy credit that was available during the last crash is not available today. The healthy supply of inventory that was available is nonexistent today. The healthy supply of resale is also not available today.
Our market is suffering from a severe shortage of new construction caused from lack of building. In addition, we lack enough resale inventory which is caused by homeowners not being able to sell due to inability to find a new home to go to because on lack of inventory.
The bottom line is until we pick up some inventory there will be such a strong demand on the market that the market is not going to be crashing anytime soon. Also remember that the more cash there is in the market the less credit is relied on. Deregulation in the past allowed banks to sell “bad loans” and that deregulation is not present today.
Buyers are different today than they were in our last crash and that is because they have been through a market crash. They are not as over-leveraged as before and they have more money to put down on their purchase than they did before. Due to strong competition buyers are forced to bring more cash to the table.
With all these fundamental issues NOT in place the biggest thing you need to worry about is how to educate your buyers and sellers on the realities of our current market.