From the water cooler to the evening news, the hottest topic in real estate is how quickly homes are selling and how many are selling above asking price. The stories of multiple offers, bidding wars and homes selling before they have a sign in the ground, is a reoccurring theme. We’ve all heard how inventory levels are low and people who have been waiting to list are gearing up to jump into this hot market. Does all this mean we are headed for another real estate bubble?
A real estate bubble occurs when home prices increase rapidly due to increased demand. At some point, demand decreases, or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble bursts. Some believe we are heading to repeat a burst similar to 2007-2008.
However, when you dive deeper into the numbers and filter through the hype, you will see that yes, sale prices are ticking up but only slightly and within market value. Listing prices may be higher than they were a year ago but when analyzing, we need to be focused on the sales that have actually closed. Comparing April 2015 to April 2016 sales prices for homes $300,000 and less have only increased by 1.5%, which is the largest gain in any price point. Closed sale prices have not increased enough to warrant the worry of another real estate bubble in the near future.
During the last run-up to the housing crash, some home buyers were overextending themselves and buying homes they couldn’t afford. Now however, exceptionally low interest rates are keeping the mortgage payments on median priced homes still well below the historical average. Meaning a typical household can buy a median priced home without overextending themselves.
And regardless of what a buyer is willing to pay for a new home, the appraisal done by the mortgage company still needs to validate the price. Rest assured the mortgage company will be the first to tell you if an asking price is above market value.
Still worried? Take Warren Buffet’s word for it then, as he isn’t buying into the hype either. “I don’t see a nationwide bubble in real estate at all,” Buffet said at a recent meeting. Now come on, ‘The Oracle of Omaha’ knows a little something about the real estate business!
It is still a great time to buy a home and deals are out there to be taken. Whether you are buying or selling, the market is hot, so jump in! Contact us and we’ll get you started.