Why This Real Estate “Bubble” Will Not Burst Anytime Soon by Kim Smith
Prices have been increasing dramatically for the last two years with the Metro Atlanta market seeing a 22% increase in median home prices in 2021.
Nationally, 60% of buyers faced multiple offers when purchasing a house. Does this mean we are in a bubble that’s about to burst?
Many of us remember the last housing crash, and this hot market with rapidly rising prices feels very familiar.
Here are some reasons why I think it’s different this time:
Record low inventory – this extreme seller’s market and subsequent rise in prices is caused by record low inventory, not loose credit and highly leveraged speculation. For the last 10 years, underbuilding has caused a shortage of about 6 million homes. To make up for the shortage, NAR says the US would have to build 2.1 million homes each year for the next 10 years. According to Realtor.com, the national inventory of active listings has also declined by 60.4% compared to 2020 before the pandemic.
Lending practices have tightened up. Many people are buying on a 30-year fixed with a low interest rate, or with cash, not a 5/1 arm that’s going to go up in 5 years and cause folks to default.
Millennials are only at the beginning of their entrance into the home buying market. We are still 3 or 4 years away from their peak first time buying age. This cohort will increase demand for limited housing even further over time as they pay off their student debt and move out of their parent’s homes.
Many Baby Boomers are not downsizing right now, due to lack of inventory for a move.
The current environment of rising interest rates is causing a bit of a cool off of demand in some areas (and by this I mean fewer multiple offers), and will probably slow price increases over the next few years. However, due to the inventory crunch, I don’t see the bottom dropping out. Homes are going to continue to appreciate, so if you are interested in buying, your money will most likely go further now than it will later.
About Kim Smith, Founder of The Closing Co.
Working in the real estate industry since 1997, Kim Smith has sold real estate for both RE/MAX Greater Atlanta and Century 21 Southeastern. Her work as a pre-closing secretary at McLain and Merritt and Morris/Hardwick/Schneider gave her experience with high end transactions as well as extensive REO experience as an account manager for Fannie Mae.