Is there a bubble and will it burst soon? This is a question, and for many a certainty, that is growing in popularity. Let me save you some suspense right now. There is no bubble. Yes, prices are rising fast but there is not going to be a sudden drop in home values when the bidding wars are over.
Financing a home is subject to strict regulation that was not in place leading up to and during the Great Recession. Today a lender who makes a loan to someone who can’t afford the payments has to take over the loan payments. How many loan officers do you think are willing to entertain making such a loan in the first place? Income and employment are thoroughly vetted. Credit history is scrutinized and then checked a second time. Homes are appraised by independent contractors who work on an “up” system so that it’s unknown who will do the appraisal.
In the 2000s, the bubble formed because credit was too easy to get. Today that is not at all the case. So what is driving this appreciation? Cash. Today’s overbids are not counting on a lax system. Buyers are happy to show that regardless of the appraised value they have the cash to make up the difference. The fact that new construction is barely noticeable only aggravates this problem.
The most likely outcome of all this overbidding is people moving into their homes and staying there for many years to come. This stay-in-place modality assures that prices will not come down. The loan is a smaller proportion of the home price. This has two effects. First, the monthly payment remains reasonable. Second, the homeowner has six figures invested in the home. It is not at all likely that they are going to stop paying their monthly mortgage with such a large equity position in the home.
The best thing any buyer can do right now is keep looking and bidding, for two reasons. One: getting a home sooner than later will mean getting it at a less expensive price. Two: The folks with ultra deep pockets will eventually all have homes, so your bid will have a much better chance. Don’t you want to be the right bid at the right time to get it at the right price? This won’t happen if you are worrying about a bubble.
Need help figuring out how to make this happen for you? Contact me at 760 622 5087 or firstname.lastname@example.org