Should we be worried about another housing bubble?
In San Diego, home prices have gone up for five straight years. Nationwide, current home prices are only about 1% below record highs from 2006 at the beginning of the housing crisis. At the same time, mortgage rates are below 4%. The average 30-year fixed mortgage rate is now just 3.95%, only a few points above the all-time low of 3.31%.
Put these two things together, and you’ve got many people wondering: Are we in the middle of a new housing bubble?
Let me set your mind at ease. The situation today is very different from the housing bubble that happened 10 years ago, and there are two main reasons why.
For one, lending has been cleaned up. The risky mortgages that fueled the housing bubble 10 years ago aren’t happening today because of new laws like the Dodd-Frank Act. There are no more ‘liar loans.’ In fact, the stricter regulation surrounding lending is one of the reasons why mortgage rates are so low right now.
Secondly, the current level of new home construction is below historical averages and is only a fraction of the level from 2006. It’s the opposite of what we would expect in a bubble: home builders simply don’t find it profitable to build new housing right now.
The situation today is very different from the housing bubble that happened 10 years ago.
This shortage of new housing also explains the high prices that existing homes are selling for. In other words, demand is higher than supply right now. It’s basic economics.
So is the current situation a housing bubble? No, we’re far from it.
The big housing crisis 10 years ago was set off by speculation and loose borrowing—we’re not seeing either of those things right now. Instead, we see a shortage of certain kinds of homes on the market—especially below $500,000—which has increased the home prices. It’s not uncommon for me to show a home to a buyer only to see the house go into escrow a few days later.
Hopefully that puts your mind at ease when you hear people speculate that we’re in a housing bubble. If you have any other questions about our market or you’re thinking about buying or selling a home, give me a call or send me an email soon. I look forward to helping you!