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A lot of people have been asking me lately if we are in a housing bubble, or headed towards a housing bubble, and today I’d like to answer that question.
Statistically speaking, housing is on a roll. Detached home sales are up 7.2% so far this year, and pending sales are up 13.8%. The average sales price is also up, year-over-year by 5.3%. The trends are expected to stay positive, and don’t even take new construction into consideration.
This has raised some concerns about affordability. After all, wages are rising at an average of 2% annually, while rental rates are rising by 4% annually. Additionally, mortgage rates are at their highest level in over a year, and are expected to continue to increase.
Some analysts have suggested we are entering another housing bubble, like in 2007. However, the hard facts suggest otherwise. Underlying conditions today are fundamentally different from a decade ago.
Back then, home sales were running at $8.5 million, new construction sales were over $2 million, and credit was very easy to come by. Today, home sales are barely over $5 million, new construction is barely scratching $1 million, and credit is much harder to come by.
Based upon what we are seeing and hearing in the market, we expect home prices to continue to rise at a reasonable rate, as long as interest rates on mortgages stay below 6%. We are a little above 4% right now, but rates are expected to rise above 5% in the next year.
For now, there is no bubble and no crash in sight. If you have any questions, comments, or concerns, give us a call or send us an email. We look forward to hearing from you!
