Are we in a real estate bubble?

Are we in a real estate bubble ?
real estate bubble

With all the headlines and buzz in the media, some consumers believe that the market is in a housing bubble.

As the real estate market changeyou may be wondering what will happen next.

It is natural that concerns arise that this could be a repeat of what happened in 2008. The good news is that there is hard data to show why this is nothing like the last time.

There is a shortage of houses on the market today, not a surplus

The housing stock needed to sustain a normal housing market is approximately six months. Anything more than that is an overabundance and will cause prices to depreciate. Anything less than that is a scarcity and will lead to continued price appreciation.

For historical context, there were many homes for sale during the housing crisis (many of which were short sales and foreclosures), and this caused prices to fall. Today, the supply is growingbut there is still a shortage of stock available.

The graphic below uses data from National Association of Realtors (NAR) to show how that time compares to the crash. Today, the unsold stock is only 3.0 months at the current sales pace.

Stock of homes for sale in months

Number of houses for sale divided by the purchase volume

One of the reasons why the stock is still low is because of the sustained underbuilding. When you combine that with continued buyer demand as millennials age into their peak home-buying years, it continues to put pressure on house prices.


This limited supply compared to buyer demand is the reason why the experts predict house prices will not fall this time.

Mortgage standards were much more relaxed during the crisis

During the period leading up to the housing crisis, it was much easier to get a home loan than it is today.

The chart below shows data about the Mortgage Loan Availability Index (MCAI) from Mortgage Bankers Association (MBA). The higher the number, the easier it is to get a mortgage.

Financing Patterns Are Still in Control

By 2006, banks were creating artificial demand by lowering lending standards and making it easier for anyone to qualify for a home loan or refinance their current home.

At that time, lenders took on much greater risk in both the person and mortgage products offered. This led to mass defaults, foreclosures, and falling prices.

Today, things are different, and buyers face much higher standards from mortgage companies. Mark Fleming, chief economist at First American, says:

"Credit standards have tightened in recent months due to increased economic uncertainty and the tightening of monetary policy." 

Stricter standards, as they exist today, help to avoid the risk of a rash of foreclosures like last time.

Mortgage foreclosure volume is nothing like it was during the crash

The most obvious difference is the number of homeowners who were facing foreclosure after the housing bubble burst. Foreclosure activity is down since the crash because buyers today are more qualified and less likely to default on their loans. The chart below uses data from ATTOM Data Solutions to help tell the story:

Foreclosures Before and Now

In addition, homeowners today are asset-richnot used.

In the run-up to the housing bubble, some homeowners were using their homes as personal ATMs.

Many immediately withdrew their equity as soon as it accumulated. When home values began to fall, some homeowners found themselves in a negative equity situation, where the amount they owed on their mortgage was greater than the value of their home.

Some of these families decided to move away from their homes, and this led to a wave of distressed property listings (foreclosures and short sales), which were sold at considerable discounts that reduced the value of other homes in the area.

Today, prices have risen sharply in recent years, and this has given homeowners a heritage increaseAccording to Black Knight:

"In total, mortgage holders earned US$ 2.8 trillion in exploitable capital in the last 12 months - an increase of 34% which equates to over US$ 207,000 in available capital per borrower. . . ."

With the average equity of the house now at US $ 207,000, the owners are in a completely different position this time around.


If you are worried that we are making the same mistakes that led to the collapse of the housing market, the charts above should help ease your worries. Hard data and expert insights clearly show why this is nothing like last time.

Are you in doubt?

Now that we have explained to you that all signs show that we are not in a real estate bubble, you can now consider investing in vacation homes in orlando. To take advantage of all the tips we have brought to you and go even deeper, you can talk directly to our relationship agents. They are always happy to talk to you with any questions you may have about investing in Florida.

In this text we approached the theme the behavior of the real estate market during recessions because it is interesting for those looking to invest in Florida. If you want to read more content like the one we brought in this article, just stay tuned here on our blog.

Invest in Florida real estate in Florida

Did you like the article? Keep an eye on our blog! Looking to live or invest in real estate in Florida? Check out the list of homes for sale in Florida that we have selected for you!

About The Author

Related posts