Fact vs Fiction: Are We In A Housing Bubble?

watch this if you’re nervous about the housing market…

No one has a crystal ball -- especially when it comes to the housing industry. But if you're worried about whether we're in a housing bubble, this video will give you a crash course in supply and demand, and help you understand how things like new home construction, home appreciation, and foreclosures affect the future of the market.

More of a reader? Catch the video transcript below.

Are we in a housing bubble?

The bottom line: no, we’re not.

I know that you see all these sensational headlines trying to get you to click on their website and tell you why it’s all doom and gloom. 

The last time we saw a rapid increase in price appreciation, it was followed by a market crash. And so it’s understandable why people today would believe that the price increases of the past two years might lead to another crash. 

Here’s what I want you to know: the fundamentals that we see in the market today are nothing like last time. The value of any asset is based on supply versus demand. So, when you have a lot of supply and little demand, buyers are in charge and prices come down.

If you have scarce supply and a lot of demand, it’s going to push values up. In the last crash, there was an oversupply of new construction hitting the market. Additionally, lending standards were really loose. This made it possible for people to get approved for mortgages they wouldn’t be able to get in today’s market. 

Why do you get when you have an oversupply of new construction homes and a bunch of people who can’t make their payments? A bunch of foreclosures.

Those two factors combined flooded the market with supply when there wasn’t the demand to support the supply, resulting in a housing market crash.

Today, we’re seeing the exact opposite. New construction has lagged significantly since the last crash. Foreclosures are down. 

Even though the market is shifting, even though rates are going up, even though more homes are coming onto the market, and even though things are slowing down, that’s a good thing. 

As interest rates go up, the demand is going to come down because fewer buyers can afford it. The supply is going to go up as sellers try to rush the market to catch the last end of the hot market, and the high prices are going to level off.

The market will normalize - not crash.

So, are we in a housing bubble? No, because that would indicate that we have way more supply than we do demand. 

Today’s pro tip: Guys, with values and interest rates continuing to go up, everyone is waiting to see what the market is going to do. But based on what we know today and the experts that we follow, we think it’s going to be more costly to wait. 

Jumping in sooner rather than later is probably going to be a good idea because if you wait a year or two, prices are going to be more expensive, rates may be even higher, and you’re going to end up paying more money for the same house a year or two from now than what you’d pay today. 

Of course, everybody’s personal and financial situations are unique, so be sure to get with your team to make sure you’re doing your due diligence - but if you’re personally and financially ready, jump in sooner rather than later because timing the market just never works out for anybody. 

Brent Edwards aka Brent the Broker is a residential real estate agent and Realtor in San Diego, CA who helps clients buy and sell homes in San Diego, California and all surrounding areas.  Brent is a highly-recommended Realtor in San Diego by family, friends and past clients. Call Brent today at 619-550-8070 if you have any questions about real estate in San Diego or you'd like to buy or sell a home.