How We Know This is NOT a Housing Bubble
Part 1 of a 4 part series on the current housing market.
First off, It’s Not A Bubble
As a person with internet access in the year 2021, you’ve probably seen the barrage of news reports, Facebook posts, and YouTube videos declaring that another housing bubble is IMMINENT.
As your friendly real estate experts, we wanted to take the time to break this down with you. What is a bubble? Are WE in a bubble? What does that mean for you?
Secondly, what is a Housing Bubble?
Simply put, a housing bubble is when home prices go up dramatically and then something happens that causes them to drop suddenly and drastically.
Let’s take at the 2000’s. (There’s a great movie called “The Big Short” that explains this VERY well if you’re interested). In 2006, the market looked good. People were buying multiple properties, there were tons of new builds available, and absolutely anyone could get a mortgage for absolutely anything.
Now, let’s focus on that last component. Why does it matter that mortgage regulations were loose?
One of the ways that banks were being irresponsible was by offering deceptive and unsustainable loans. One of the most popular types of loan was a “balloon payment,” a type of loan that started at a very reasonable rate (which also freed up capital to buy MORE property) and then “ballooned” to a much higher amount that they expected people would refinance.
In this case, banks were counting on continued economic growth in the country to keep people paying off (and getting more) mortgages.
It all came to a head when the stock market crashed in 2008. All of the sudden, people who had been doing well financially and trying to take advantage of what they were told was a “good market” and “great rates” found the rug ripped out from under them.
No longer able to make their payments and over-leveraged (often from using equity from one property to buy more properties that they couldn’t afford), the stock market crash rippled across the country, decimating values and leading to over 800,000 families losing their homes to foreclosure in 2008.[1]
Many Americans are still, over a decade later, dealing with the repercussions of this crash. It makes sense that people are wary of the current market and want to make sure that they aren’t making any decisions that will come back to hurt them later.
Which brings us to part 2: Are WE in a housing bubble?
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Steven Ritz, Buyer Specialist - Call 321-277-8271 or email here
Linda Sitek, Listing Specialist - Call 407-963-6544 or email here
Brought to you by Abode at Keller Williams Winter Park Realty
[1]https://money.cnn.com/2009/01/15/real_estate/millions_in_foreclosure/#:~:text=A%20total%20of%20861%2C664%20families,received%20a%20notice%20last%20year.