Are we in a real estate bubble? Experts start to see the signs that may be looming in the corner. In an X post, housing market and real estate analyst and Reventure Consulting CEO Nick Gerli revealed that the developed “massive bubble” is about to pop in the Southern Region, with housing inventory and homes for sale increasing to almost 300,000 (FL, GA, TN, TX, etc.).
It’s the highest level since August 2006’s bubble peak before the market crashed and recession. People looking to buy a house or searching for answers also search for the following terms.
Key Indicators Of A Bubble
Meaning of Bubble in Real Estate
2008 Housing Market Crash
The Housing Market Crash Would Happen Soon?
Is The Us In A Housing Market Bubble?
Real Estate Bubble Brewing
Latest Home Prices Rise in Mortgage Rates
Contents
Real Estate Signs of a Housing Bubble
Many people ask. Are we in one now? Is the market-crushing soon? While it is impossible to predict this early, this scenario is possible.
Is it happening now? If we look at the situation in the Southern Region, we can say that, in part, the US is in a housing crisis.
Speculating were investors and home builders who created the housing boom. After 2020 and during the peak of the COVID-19 crisis, people experienced the freedom from remote work options. They also sought cheaper prices in the South. Thus, more Americans sought to migrate there.
This developed and created the real estate bubble. What is a real estate bubble?
One of the warning signs to look for that a housing bubble burst is about to happen is the steep increase in home prices of housing units. This is based on housing market trends,
In the case of this bubble, whatever is causing the rise in demand will eventually collapse or might lead to a housing bubble to burst. So suddenly, the situation will be lower demand and a higher surplus.
This is exactly what’s happening in the Southern Region. How is there a bubble about to burst? Migration is dwindling, and so is the demand for housing. As a result, house prices are starting to drop.
But there’s no single cause of a bubble because it varies from one to another. It happens due to a variety of factors. A “temporary” external pressure that results in higher demand can influence housing fundamentals.
Signs of a Housing Bubble: Fear of Missing Out (FOMO) and Speculative Buying
Will there be a housing market crash? Speculations can cause a bubble because it drives the market away from the basics. In some cases, speculators find an opportunity to join a trend, ride a wave, and then venture into the market.
In the South, more home builders went into overdrive in housing construction. This was when they saw an opportunity during the COVID-19 pandemic. It was when many existing homeowners and Americans migrated to this region. Reasons included the prevalence of work-from-home options and the cheaper cost of living.
In summary, south-based builders rode the wave and ramped up the construction of new homes to answer the public’s soaring demands.
Signs of a Housing Bubble: Skyrocketing Prices in the Housing Market
Homes are becoming increasingly unaffordable for the average American homebuyer. As property prices increase, wage growth remains relatively flat.
In fact, accounting for inflation and other factors in over 50 years, home prices increased to 118% since 1965. Sadly, the average American household income only increased by 15%.
Surging home prices outpacing one’s income, the dream of homeownership might remain a dream for many.
NOTE: The demand for housing can increase. It can happen when more people have disposable income. This occurs when they can put money toward a down payment and high interest rate.
But that’s not the case now. Housing crash? The demand dwindles. It occurs when people cannot afford to buy a traditional home increases. There can also be high mortgage rates to pay. Such are the effects of a housing bubble. Thus, one might not be far from sight.
Seeking a solution, homebuyers are eyeing a tiny home. It is a more affordable alternative to traditional US homes with high mortgages. A typical tiny home has an average price of only $23,000. But traditional home is $420,800, not to mention burdensome mortgage payments.
Unsustainable Demand in the Housing Market
There was much anticipation and speculation about market conditions. Home builders and investors venture into real estate and construct more homes. But, when there is higher demand than inventory, home sales price increases follow. Think demand and supply in economics.
In the south, the housing market was removed from its fundamentals. It happened during the COVID-19 pandemic, causing prices to increase. The declining demand and rising mortgage interest rates might lead to a bubble about to pop.
Housing Experts Say “No” to Signs That a Housing Bubble About to Burst
Is the housing market going to crash? There are many potential bubble to pop warning signs. We are seeing them in 2024 in the real estate market. It is according to the current market trends. The housing market might be facing challenges that trigger a pop in the bubble. These can also lead to homeowners to lose their homes. But, experts have spoken. They do not believe that the housing market is going to crash.
Heightened Demand, Lack of Supply
McBride also said that it’s the primary reason for the price run-up. But as builders put more homes for sale on the market, a balanced supply and demand can occur. Adding to this, many homeowners consider selling their homes and potential first-time buyers are priced out of the market.
So what led to the housing bubble pop in the past, which might have included the signs it is about to burst mentioned earlier, might not be the case in the entire local market of the US. Such signs might not mean a bubble will be bursting soon.
Homes On The Market Are Still Low
The housing market could still be in a good shape because the housing supply is still low, at least in the majority of the US housing market. Given these market conditions, it is unlikely that supply and demand would let housing market crash soon.
So, while there might be “Housing Market 2023: 10 Warning Signs of a Housing Crash You Should Watch For,” signs of an impending housing bubble to burst (or maybe even more), this data might indicate a housing bubble popping soon won’t be happening. It was also an improvement from 1.7 months in early 2022.
Lending Standards Are Still Tough for a Borrower
A bubble to burst may also be unlikely. For instance, any lender, who lends money to borrowers, imposes high standards (rise in mortgage standards). So aside from the fact that mortgage prices rise, it is unlikely that the market will soon crash.
Those who can qualify and be approved to get a mortgage should have high credit score – 770 – according to the NY Federal Reserve Bank (Q1 2024).
Oppositely, if the standards for those aspiring to buy a house loosen and go back to the period of 2004-2006, it will be a different story, according to Greg McBride, Bankrate’s chief financial analyst. He adds, “If we start to see prices being bid up by the artificial buying power of loose lending standards, that’s when we worry about a crash.”
Oppositely, senior loan officers report, based on a Federal Reserve Survey, that the standards tightened even more due to the anticipation of housing demand when home sales mortgages drop soon.
Not a balanced market, but with fewer foreclosure activities
Another key: Activities on foreclosure are muted. So, while there might be a downturn after the bubble to burst or housing crash when millions of foreclosures were on the market with home values and prices reached depression, it’s not the situation now.
A bubble may not be near yet. Many homeowners still enjoy a home equity cushion. Lenders also did not file defaults even during the pandemic’s peak when there was high unemployment (foreclosure activities were at record lows in 2020). So, even if there has been a rise in the foreclosure rate, it is not like it was before, given the current data on homeowners’ equity in their homes.
Final Thoughts
While there are signs that might trigger a housing bubble to pop amid a housing downturn in some parts of the U.S., such as rising home prices (with slow income growth in the labor market), homeowners may not expect a housing market crash to happen soon.
Let us wait for further information about when the market stabilizes and the home price index balances. (Maybe sources like real estate agents, the National Housing Survey, the Case-Shiller home price index, or the whole data of the housing market as well would give you more ideas).
Meanwhile, homeowners who want to enter the market should start planning their finances and consider an alternative even when we are in the half of 2024 now if they want to own a home and not worry about potential housing market crashes. One of which is a tiny home, if they can afford one or at least get financing for it.