Are We in a Housing Bubble Like in 2008?
The short answer, no. Here's why.
1. Limited supply & Surplus of Demand
The supply of homes is currently the lowest its ever been since the late-1900s. Financial analysts attribute this to the lack of homes that Americans built after the housing bubble of 2008. Many Americans were likely uncomfortable with building homes after experiencing one of the most devastating recessions in decades.
The lack of new homes built can be seen through the low number of building permits and housing starts. They are down 26% and 37%, respectively, since peaking in 2006 (Carlson). In addition, millions of millennials are ready to jump into homeownership, with the average millennial being 33 years old. With these two forces in motion, an increase in home prices is only natural.
2. Low-interest Rates for High Credit Scores
Due to COVID, the FED made interest rates extremely low to encourage Americans to spend more, subsequently stimulating the plummeting economy. In doing that, FeddieMac recorded that the average 30-year mortgage hit its lowest rate last December at 2.68%.
Taking advantage of the current low mortgage rates would be great. The only thing is your credit score needs to be just as great to be approved. Fortune reported that lenders are currently looking for individuals with credit scores that are 700 and higher. This scenario is the complete opposite of what happened in 2008. During that time, the average 30-year mortgage was about 6%. Plus, lenders weren't concerned with credit ratings or even proof of income when granting borrowers the money for their new purchase. As a result, many Americans defaulted on their loans because they couldn't provide the necessary capital to pay for them.
We aren't in a housing bubble. Many Americans are trying to buy a home and have the capital needed for a down payment, but the number of homes in supply is limited. On top of this, Americans need a much higher credit score to receive a loan than they previously needed. Eventually, the FED will increase interest rates. I'm sure when this happens, the sizzling hot prices of homes will cool off.
“30-Year Fixed-Rate Mortgages Since 1971.” Freddie Mac, www.freddiemac.com/pmms/pmms30.html.
Carlson, Ben. “No, We Are Not in Another Housing Bubble.” Fortune, Fortune, 16 Apr. 2021, fortune.com/2021/04/16/are-we-in-a-housing-bubble-covid-real-estate-prices/.
Orton, Kathy. “Mortgage Rates Pulled down to Lowest Levels in History.” The Washington Post, WP Company, 6 Aug. 2020, www.washingtonpost.com/business/2020/08/06/mortgage-rates-pulled-down-lowest-levels-history/.
Taylor, Peter Lane. “America's Housing Market Is Officially Over-Heating Everywhere. How Long Will It Last?” Forbes, Forbes Magazine, 21 Apr. 2021, www.forbes.com/sites/petertaylor/2021/04/18/yes-americas-housing-market-is-officially-over-heating-everywhere-how-long-can-it-last/?sh=4eff9e314437.