The Keeping Current Matters blog recently posted an article on why the housing market is NOT in a bubble. Yes, many of our markets are crazy right now (or frenzy, to quote Lennox) but the characteristics of these markets are markedly different than the sub-prime issues that caused the last bubble. If your clients are asking you about a bubble, here are some great talking points:
With housing prices appreciating at levels that far exceed historical norms, some are fearful that the market is heading for another bubble. To alleviate that fear, we just need to look back at the reasons that caused the bubble ten years ago.
Last decade, demand for housing was artificially propped up because mortgage lending standards were way too lenient. People that were not qualified to purchase were able to attain a mortgage anyway. Prices began to skyrocket. This increase in demand caused homebuilders in many markets to overbuild.
Eventually, the excess in new construction and the flooding of the market with distressed properties (foreclosures & short sales), caused by the lack of appropriate lending standards, led to the housing crash.
Where we are today…
1. If we look at lending standards based on the Mortgage Credit Availability Index released monthly by the Mortgage Bankers Association, we can see that, though standards have become more reasonable over the last few years, they are nowhere near where they were in the early 2000s.
Read the entire article online here and share on social media or email.