Yesterday, my husband sent me this article regarding “the next housing bubble”.
Basically, the author feels like because prices are rising so quickly, we must be in a bubble again. He feels that since they are going up, then people will be underwater because they’re destined to come crashing down.
My response is that I only partly agree. Are housing prices rising–FAST? Absolutely. That part the author definitely got right. But I think that they are increasing for very different reasons. The problem with the first housing bubble was that people who could not afford homes were using creative financing to fund them–and that just was not sustainable. Nowadays though, there’s been A LOT of regulation in order to qualify for a mortgage, so financiers can’t lend 0% down anymore. If you’re buying right now, you’re doing it with all cash or at the very least a decent down payment…either of which are way more sustainable than the 2007 burst. These new homeowner’s have a cushion there for when prices begin to level out.
The reason the prices are skyrocketing right now are not because people are buying when they can’t afford it, it’s because there’s such little inventory. Just a few weeks ago there were only 1,300 homes in the Valley for sale. To give you an idea, a balanced market is approximately 4,000-5,000 homes. With so many people wanting to capitalize on the low interest rates (3.5%?! Holy cow!) and such little availability, it’s no wonder prices are going up and bidding wars are all over the place.
The Fed recently announced that they would be slowly stop buying up as many stocks (which had helped subsidize the interest rates to keep them at the historical lows). So interest rates will be changing from 3.5% to probably around 5-6%. Don’t get me wrong–5-6% is still a great rate, but some people feel it might be worth paying a little more in the sales price in order to get in at a lower rate.
My guess is that as more sellers come out of the woodwork to take advantage of the seller’s market we have, and some buyers will drop off as interest rates increase, we’ll begin to get more balanced. I don’t think we’ll see the burst in epidemic proportions that we had in 2007. Rather, my guess is that we’ll see a small hiccup. The market will end up self correcting with the new sellers coming in, and we’ll become balanced and healthy.
If you’d like more information on the San Fernando Valley or Los Angeles, or to have help looking for your next home, please feel free to reach out! I’m happy to help, no obligation.