It’s no secret that the real estate market is experiencing quite a boom, and has been since about April 2020. For a lot of folks who survived the 2008 housing bubble burst, this may feel like deja vu. Many are concerned that these prices are not sustainable and assume that there is an inevitable crash on the way. Let’s talk about why this is no housing bubble burst on the horizon, and what you can expect instead.
Expecting a Housing Bubble Burst on the Horizon
Is History Repeating Itself?
The short answer is no. We have been seeing some similarities to the pre-2008 housing bubble burst, such as accelerated appreciation. But there are some key differences between what we’ve seen recently and what was happening in the mid-2000s. Leading up to the market crash in 2008, the increase in home appreciation was incredible, but it was also fueled by speculation and bad lending practices. The appreciation we are seeing today is based on the fundamentals of supply & demand.
Comparing the Differences
Right now we have a very simple supply and demand-driven market. We see prices increase when demand increases and supply stays the same. Becoming largely pronounced at the start of the pandemic, we saw the masses staying home and commuting less often. This drove many to consider their housing needs and also forced them to consider which regions they wanted to be tied to in the long term. At the same time, we have a huge new batch of millennial home buyers who are just beginning to hit the prime of their careers and are ready to buy homes for the first time, sometimes even buying sight unseen. In fact, according to the National Association of Realtors, Millennials make up 37% of current homebuyers. Factor in record low interest rates, and you have some good reasons for such a huge increase in demand.
Contrast the above variables with 2008-2009. The boom in the housing market was largely created by bad home loans that many people could take out with very few qualifiers. As well as a bolstered banking system that was no more stable than a house of cards. Those loans and the problems they caused are largely eradicated by newer legislation and tighter loan qualifications across the board. This is one of the huge differences in what we are seeing right now. The single most blame-worthy aspect of the 2008 housing bubble burst is not a factor here. To put it frankly, what we have now is an honest increase in home values. Driven by stable supply and demand factors not a manufactured and poorly reinforced bubble like we saw leading up to the crash in 2008.
But is the Market Sustainable?
We’ve established that what caused the housing bubble burst in 2008 is not really relevant to today’s market. But there’s little doubt that the housing market can’t sustain the growth we’ve seen in the last fourteen months, at least at the same rate. The key to remember here is that not being sustainable at this unprecedented rate and an inevitable crash are two very different things. Without an increase in supply or a decrease in demand, this market is likely to stay a seller’s dreamland. Likely, it will continue for a bit longer as we’ve seen homes sell within hours of listing, sometimes with bidding wars and cash offers. However, there is likely to be a slow and steady, but not sudden, evening out of supply and demand.
Looking at the Post-Pandemic Effects
Demand will drop over time because as the pandemic comes to a reasonable end, people will begin to feel safe to travel again, and remain in cities they considered fleeing initially. There will be less focus on staying home and more focus on getting out and enjoying life. There will still be people looking to buy, but they may not be in as big of a hurry.
We saw some hesitation from sellers to list their homes over the winter months in the middle of the pandemic. This contributed to the short supply. As that trepidation begins to ease up, we will see more supply trickle onto the market. New constructions are also trying to catch up with the lack of supply. And while it takes time, those homes will fill an important void and provide stabilization to the market.
All of these factors together will do the job of creating a stable but still very healthy market in the next few years. These factors are nothing shocking or turbulent, rather part of a gradual stabilizing process in a healthy market.
No one has a crystal ball, but one thing I’ve learned over the years is to watch housing inventory. And it is my sense that Existing Home Inventory Might Have Bottomed. If inventory has bottomed, then the question will be: How quickly will inventory increase? I don’t have an answer yet, but if inventory increases slowly, house prices will continue to rise rapidly, and if inventory increases sharply, house price growth will slow. – Bill McBride, Calculated Risk
Experts believe the market will stabilize and continue to appreciate. No crash is anticipated. You will notice in the quote from Calculated Risk that even with a sharp increase of inventory, we will only see price growth slow, not collapse or go negative.
So What Can You Expect as Supply and Demand Stabilize?
While there are some variables to consider, namely interest rates which do have some fluctuation, the laws of supply and demand are very reliable, and thus, predictable. As such, for the reasons mentioned above, we expect the market to simply balance out gradually over time. The home-buying millennials aren’t going anywhere! In fact, they make up over 1/5th of our nation’s population. So we will still see droves of ready willing, and able buyers for years to come. We will also likely see a continuation of the newfound value of homeownership in desirable areas such as North Metro Atlanta. In fact, National Mortgage News pointed this out when it rated Atlanta number five in the Top 12 Hottest Housing Markets.
The pandemic created some frenzy that will fizzle out to some degree. But much of the increased demand for housing is stable and we expect it to remain in play for years to come. This trend can be seen nationally and Atlanta real estate tends to follow suit. Contact us today to learn more about housing market opportunities in the Atlanta area.
