The demand for housing is rising rapidly and threatening to overwhelm the supply. Additionally, home prices have been increasing by about 15% year-over-year. It is good for the housing market, but many people are concerned that these are signs of a bubble about to burst.
What Has Changed?
The increasing demand for houses is the most notable change. Demand has been increasing gradually over the years, but it seems to have accelerated over the recent past.
The COVID-19 pandemic has undoubtedly swayed the housing market, creating more demand. It is also worth noting that home-building falls behind population growth, creating a nationwide generational housing supply shortage. To this end, millions of millions have recently become home-owners, and millions more are following in their footsteps.
It is also worth noting that the fiscal policy has been bullish for the past 12 years, which has increased the demand for housing. This has also encouraged people to buy houses as investment, creating a shadow inventory of millions of unlisted houses. On that note, technology is also making it easier to list and sell/buy houses, creating a robust market.
Will the Bubble Burst?
The housing market looks a lot like it did before the Great Recession. However, worries about a bubble burst are not warranted – not for now, at least. This is because external factors such as technology and the COVID-19 pandemic have changed the underlying demand and supply fundamentals.
All the current fundamentals can explain the escalation in housing demand and home prices. A bubble burst usually occurs when the fundamentals and market forces cannot be reconciled. For example, it is worth noting that mortgage rates are dropping by many points, consequently offsetting the rising home prices.
The housing market bubble is not about to burst. On the contrary, it is expected to make substantial gains over the foreseeable future. The economy also looks poised for a major recovery, further boosting the housing market.
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