4 Reasons Why This is Not a Housing Bubble

In a recent survey by realtor.com, it is revealed that 77% of buyers and sellers believe that we are currently in a housing bubble. That is why many are currently refusing to make a move and delaying their plans until next year. 

If you feel the same about the market, we're here to let you know that this is not true. Let's look at the following graphs of data that show the true condition of the market. 

1. Houses Are Not Unaffordable Like They Were During the Housing Boom

There are 3 things to look at for affordability: the price of the home, the income of the buyer, and the current mortgage rate available.

It is wise that the buyer should not spend more that 28% of their gross income for mortgage payment.

Let’s look at the 3 components in the previous housing bubble 15 years ago: prices were high, income was low and the mortgage rates are around 6%. Today, even though prices are still high, the income of buyers have increased and the mortgage rates are well below 6%.

This goes to show that houses are more affordable now as compared to the past.

In the chart below, you will see that today, buyers are paying a smaller percentage of their income at compared to the 34.1% being paid last 2007.

2. Mortgage Standards Were Much More Relaxed During the Boom

Another reason why we’re not in a housing bubble is the higher standards set by lenders when screening buyers. During the housing bubble, it was very easy to get a loan. Now any credit score between 550-619 is considered poor.

In the graph below, there’s a significant decrease of purchasers with a credit score less than 620, so the purchasing population now is more qualified to pay for their loans in the long run.

3. The Foreclosure Situation Is Nothing Like It Was During the Crash

The biggest difference would be the number of foreclosures from 2007 to 2010 and from 2018 to 2021. The forbearance program impacted the numbers of 2020-2021. Many homeowners were helped to go through the pandemic. Those owners left in the program are now working out their repayment plan with their banks.

There are fewer foreclosures now because the equity of homeowners is high. During the housing bubble, homeowners immediately withdrew their equity once it was up. Home values fell so much so that the mortgage was higher than the home value! Many homeowners left their homes, resulting in more foreclosures and short sales, further lowering the home value.

Homeowners are much wiser now. Even though they have high equity, they are not utilizing it, that’s why the current average home equity now is at $300,000. With this number, the housing crash is highly avoidable.

4. We Don't Have a Surplus of Homes - We Have a Shortage

Unlike before, we currently have a shortage of homes. This means that the prices of homes are least likely to go low. Below shows the number of homes for sale in the month of December in the years 2007-2010 and 2018-2021.

If you are anxious that there will be a housing crash, let these graphs backed up by data erase your worries. However, it is still best to work with a realtor that you can trust. Someone who will honestly tell you when to move forward or to take a break in buying or selling. If you don’t have that kind of person with you, call us at 925-415-0835. We’ll make the whole process smooth for you.