Is The Current Real Estate Market In A Bubble?

Posted by Courtney King on Friday, February 19th, 2021 at 12:03pm

What drives the risk of a house price correction?

According to JP Morgan, the housing bust and subsequent recession were deepest in the areas where mortgage borrowing expanded the most in the pre-crisis years, driving unsustainable increases in prices. During the 2006-2011 housing bust, price declines were closely intertwined with growth in mortgage debt during the boom. The growth in mortgage debt from 2003 to 2006 explains about half of the variation across counties in the decline in real prices from 2006 to 2011.

Another notable feature of the mid-2000s housing market is the presence of high prices even in places where the supply of housing could – and did – expand rapidly. Indeed, in the mid-2000s, prices rose well above cost in a number of markets where the housing permit data show that supply was expanding rapidly.

What is different now?

We are not in a mortgage crisis due to unscrupulous mortgage practices for one and supply is significantly lower than the demand?

When will this change? There are not any indicators in the near future showing that this will change. As we saw with the pandemic, we cannot predict what any markets will do with 100% accuracy with all of the unknown factors like a CoVid19 or other significant worldwide impact; however, here are the facts:

  • Amid red-hot demand, inventory continued to decline for the 23rd consecutive week, dropping 37.4 percent year over year. New listings were also down year over year by 7.4 percent, and down by 7.9 percent from the previous week.
  • An expected reacceleration of GDP growth in 2021 should help push sales volumes higher, according to an article in Inman News.
  • Historically low mortgage rates
  • The desire to move to a home that provides more space inside and outside
  • More people can work from home, meaning they can live just about anywhere

The supply will either need to increase or the demand needs to change, which is not in our crystal ball anytime soon. Read more on our markets in Montana here, Real Estate Spotlight for SW Montana

 

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