Is Housing in a Bubble?

If you are comparing the housing market prior to the crash in 2008 and our current market, I want to point out some differences that support what many leading economists claim: a housing crash is not imminent.


While we are seeing a few typical bubble signs, including rapidly rising prices, affordability challenges, and a buyer mentality of “I have to get in now, or I am going to miss out,” the other leading indicators all point to a strong market.

  • Buyers have “skin in the game”- The average down payment is up to nearly 16% versus 9% in 2007.

  • Lending restrictions are much tighter, and mortgages are much more difficult to obtain. Mortgages leading up to the crash were comparatively easy to obtain, requiring a small down payment or in some cases, no down payment at all. In 2007, 45% of first-time buyers financed 100% of their home compared to just 17% in 2020.

  • Prior to the 2008 crash, no-income verification loans became immensely popular due to the relaxed underwriting standards and rising real estate prices. This led consumers to believe that homes would continue to gain value indefinitely, but once it became clear that this wasn't the case, no-income loans fell out of favor among lenders and investors.

  • Adjustable-rate mortgages were another popular loan prior to the market crash. These loans enabled many to get into that new home easily due to “initial” lower monthly payments. But when interest rates rose, so did the monthly payments, leaving many homeowners unable to make their house payment. Before the 2008 market crash, 15% of buyers gambled with adjustable-rate mortgages compared to just 4% in 2020.

  • When the market crashed in 2008, interest rates spiked, home values plummeted, and many homeowners found themselves underwater, or owing more on their home than it was worth. This led to 234,685 foreclosure filings in March 2008, compared to 48,084 in February 2020, (prior to the pandemic) and 11,810 fillings in April 2021. Many homeowners that had made a small or no down payment, had little or no “skin in the game” and simply left the keys on the counter and walked away.

  • The current combination of low inventory and high demand means the risk of overbuilding is minimal. Homes for sale in July 2007 equaled 4 million; in April of 2021, the number was 1.16 million. The market prior to the crash was oversupplied which is certainly not the case today!

Home prices rose 11.3 % in 2021 and homeowner equity increased by 16.2% year over year. Most homeowners have significant equity in their home and, should they be forced to sell due to job loss or other unfortunate circumstance, most will be able to sell their home quickly due to current demand. Then, they can pay the mortgage and move on with the proceeds in their pocket.


The bottom line: demand is strong primary due to historically low interest rates creating an inventory shortage and making home buying a significant challenge. However, over the last few weeks, the inventory has slightly increased and there are some other indicators that the market may be returning to a pre pandemic normal cycle.

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