More than 77% of home buyers and sellers believe there is a housing price bubble in the area where they live, according to a survey in a new Redfin report. The historically rapid growth in house prices has worried buyers and sellers alike, although experts at Redfin say rising mortgage rates and buyers who can afford their homes are preventing a bubble.
A housing bubble is characterized by rapid and unsustainable house price growth that eventually “bursts” when demand no longer supports high house values, followed by steep price declines. These cases are usually caused by an influx of inquiries from home buyers and real estate investors. Meanwhile, 44% of real estate agents believe there is a real estate bubble in the market where they work.
“What we’re going through right now is closer to a ripple in water than a bubble,” said Redfin chief economist Daryl Fairweather. “Mortgage rates are already rising, which will likely stabilize demand and reduce the risk of a bubble bursting.”
The housing market has been fiercely competitive as the coronavirus pandemic has upended American society in 2020, leading to an increase in remote working and record mortgage rates that have led to strong demand from homebuyers and a severe shortage of housing. supply. Median home prices rose by double digits throughout 2021 as Americans continually moved to new parts of the country and new neighborhoods for affordable prices.
“Home buyers and sellers are rightly concerned about how quickly prices are rising, especially those who remember the housing market crash during the Great Recession,” Fairweather said. “If this rate of price growth were to continue for another year, I would also worry about a bubble, but I predict that house price growth will slow significantly in 2022.
Fairweather also mentioned that inflation, which hit a 40-year high in late 2021, also poses the risk of a housing bubble. With prices for goods and services significantly higher than they were a year ago, people have less disposable income to invest in the housing market. Average 30-year mortgage interest rates have risen about 0.5 percentage points since the start of 2022, reaching 3.56% in the week ending January 20, and are expected to continue to rise.
“The housing market is much stronger than it was before and during the Great Recession,” Fairweather said. “There is a very low probability that house prices will drop any time soon.”
The housing surge caused by the pandemic is very different from that of the mid-2000s, when lending criteria allowed many buyers to take out mortgages they could not afford. This led to millions of foreclosures and a sharp drop in house prices. Today’s lending practices and managers are much stricter, ensuring buyers can pay their monthly payments hassle-free.
To read the full report, click here.