Home values are rising as the housing market has many homeowners scared that we’ve reached “bubble territory.” Over the past year, values are up 11.6% which is the highest level we’ve seen since the housing crash.
But, there’s good news: analysts don’t believe the market is in a bubble.
2004 and 2005 Experienced Different Value Drivers
In 2004 and 2005, the same market drivers that pushed the market to burst are not in play in 2021. The bubble was driven by loose lending practices that allowed non-traditional borrowers to receive loans.
Many of the buyers weren’t in a position to buy the homes that they were approved to live in.
The result was many homeowners living well beyond their means and falling behind on their mortgages. Foreclosure rates rose, and a recession was the result.
Fast-forward to 2021, the market may look very similar to the past recession, but it’s fundamentally different.
What’s Driving the 2021 Housing Boom?
Coronavirus plagued the country in 2020, and the job market was impacted by business closures and layoffs. Homeowners this time were more financially stable than in the past thanks to tightened lending practices that were put in place to stop housing bubbles.
Borrowers in today’s market need strong fundamentals to receive mortgages.
The real drivers of home values rising this time around are:
- Demand has risen due to low mortgage rates
- Housing inventory remains lower than normal
Essentially, demand is exceeding supply, so it’s a market that is filled with bidding wars, homes selling for more than the asking price, and builders that can’t seem to catch up to the demand levels needed to cool the market.
A lot of would-be sellers decided to hold off on selling their homes due to the pandemic. These owners have updated and remodeled their homes, and a lot of the owners are still reluctant to or don’t want to sell their homes after remodeling.
Real estate that is reaching the market comes off the market before people can go and have a look at these homes. Depending on the region, homes are selling in just three days after being listed, down from seven days.
The market remains red hot, and with inventory retracting again in April, the rising prices look like they’re here to stay. The main difference is that the buyers of 2021 are met with tighter lending practices and are still able to afford these homes. In 2007, the homes many people were buying were well outside of their affordability.
It’s expected that between April 2021 and April 2022, prices will rise an additional 11.8%.
For sellers, the current market is one of the best we’ve seen in decades. Cash buyers are buying homes unseen, and there’s little time between putting a home on the market and accepting an offer. While the market may cool a year or two from now, there are no telltale signs that there’s a housing bubble awaiting the market any time soon.
Buyers, be prepared to pay asking price or higher for homes in growing markets as the competition remains stiff.