Why This Housing Market Is Not a Bubble Ready to Pop
THIS IS WHY THE HOUSING MARKET IS NOT IN A BUBBLE
Today home ownership remains the top priority for the American Dream. In fact prior to the 1950's less than half of the US owned their homes, but after World War II the veterans returned home and utilized their GI Bill to purchase a home. Since then, we have continued to increase home ownership to nearly 66%.
Did you know over 60% of the average Americans wealth comes from owning a home? That's right - it is one of the few investments we make that continues to grow in value after you purchase. Compare that to a car which depreciates as you drive off the lot or luxury jewelry or clothing that depreciates due to wear and tear. As they say, "God is not making any new land" so if you want wealth - you need to Buy a Home!
The ONLY time in history that home values dropped significanlty was during the housing boom and bust of 2006-2008. This was only due to the relaxed Lender programs and over building of homes that created a bubble of too many buyers and too many homes. When the relaxed loans started to shift into the Ajustable Rates - homeowners did not have enough equity to save their homes.
Fast forward to today - When starting to look for a home its is VITAL to get PreQualified or PreApproved before you even begin to shop for a home. Infact, most Real Estate Agents and Builders will not begin the process until this is done. As you move through your home buying transaction the Lenders will review your Debt to Income, You Income and your over all Debt. It is not unheard of to get to almost closing and the Lender could cancel you loan before you ever sign on the dotted line. Why? They want to ensure that your credibility to pay back the loan is the same as before you enter your new home.
Why Today's Market is Completely Different
1. The home ownerhip of today is REAL and not bloated. Lending Standards as previously discussed have changed. You must meet the criteria to purchase a home.
2. People are no longer using their homes to Finance their lives. In 2006-2008 people that were litterly on the edge to qualify were given cheap loans that would eventually adjust. Giving a false belief they could afford the home. At same time - Buyers were taking out HELOC and other loans against their home to add on pools, pay off cars and other debts which just increased their loan on their home that they could not already afford.
According to CoreLogic - home owners today have not tapped into their equity which averages about a gain of $55,300 over the past year alone. 41.9 % of all loans today have atleast 50% of their equity in place.
The reason of the collapse of 2006-2008 was foreclosures due to the relaxed lending practices. Google Mortgage Lenders in 2006 and then Google Mortgage Lenders in 2022 - you will see many from the past are no longer in buisiness due to their tactics of that period.
Since 2008 Builders have slowed their building process leaving us with 4,000,000 homes short for the buyers we have today. That may seem like alot but consider we have the largest age group hitting the first time housing market since the Baby Boomers.
Add up the lack of housing, the stricter lending practices and the largest boom of home buyers - we litterally can't keep up. Housing is still the wealth builder it has always been - you just need to be prepared to do the work.
Real Estate trackers and Economist continue to say, "we will continue to be short of housing for some time". Adding to the issue we have the GREAT MIGRATION in the last few years due to COVID where workers have been allowed to work from home - Home Owners and new Buyers are moving in large numbers exacerbating the housing market.
BUT DON'T SAY YOU WILL RENT UNTIL...
Rents will continue to go up - infact many rents are more than house payments. Renter do not receive the tax benefits of owning a home and you will not walk away with money when you move out. Infact it will cost you more to move! When we hear "interest rates are too high" - let me say this - Renting is 100% interest. Would you rather pay 5% interest, gain tax benefits, own your home and make money when you move OR pay 100% interest.
These last two years of 2020 and 2021 was a fluke of historically low interest rates. If you google interest rates from 1972 to 2022 you will see the average interest rate range is 4% to 7%. At one time interest rates were 18% and yet people still bought and sold - why - because everyone needs a home and 18% is still cheaper than 100%.
Work with a REALTOR® and a reputable Lender and you will well be on your way to the American Dream!