The S&P CoreLogic Case-Shiller home price index reached an all-time high during 2017, and prices are still rising in most U.S. metros. As of August, home prices in the U.S. marked a 6.1% annual gain, beating the expectations of economists.
The ongoing rise of housing costs concerns home buyers and some industry professionals, who fear a new housing bubble akin to the one preceding the Great Recession. But according to Freddie Mac’s November 2017 Insight report, there are major differences between today’s housing market and the real estate run-up of the prior decade.
To explain further, we’re sharing highlights from the report, along with our own commentary. Here’s why today’s market dynamics do not signal a housing bubble:
Home prices are based on supply and demand. Lean home inventories are keeping pressure on buyers and causing prices to rise. This is especially true in metros where jobs are plentiful.
New home construction remains below norms. Home construction has fallen short of buyer demand. The industry has been challenged by skilled labor shortages, the rising costs of materials, rising land costs, and rising municipal fees.
Credit quality is stronger. New consumer protections and tougher underwriting standards have resulted in high-quality mortgages with low default rates.
Homeowners are more cautious with equity. During the housing bubble, homeowners treated their fast-rising equity like lottery winnings, taking out large loans against it. While some used the funds for practical purposes, many treated themselves to luxury purchases and vacations.
Investment activity isn’t wildly speculative. Homeowners are staying in their homes longer, and home builders are not mass producing developments on speculation. Even house-flippers are pragmatic, as rising home prices and material costs have tightened up margins.
As long as market fundamentals are in tune with the broader economy, we are unlikely to see another housing bubble – or bust. Of course, economic winds can change, and home prices can go up or down locally for reasons unconnected to national trends.
This is why having an Exclusive Buyer Agent is so important! “Buying smart” helps you save money, avoid home buying pitfalls, and enjoy successful long-term home ownership. It also improves your gains when it’s time to sell! Find an EBA in your area today!