Due to the quick rise in home prices, many people are afraid that the real estate market is heading for another bubble. Frankly, I don’t know. So let’s just examine some of the reasons that caused the last bubble, which was 10 years ago.
Ten years ago housing demand was high because mortgage companies were very lenient. Anyone who could fog a mirror seemed to be able to get a mortgage. This caused housing prices to skyrocket. But buyers didn’t care, because they could always refinance a few years down the road, or sell and get an even bigger, more expensive home. This also caused home builders to build more then the market could handle in many areas. Eventually all of this caught up, and the market began to get flooded with distressed properties, such as foreclosures and short sales. And this led to the housing crash.
The difference today is that the landing standards have become much more stringent. They are no longer giving mortgages to anyone who can still breathe. And new construction has come back more in line with the market demand. And even though housing prices are rising quickly, most homes haven’t even return to the high prices ever seen 10 years ago.
In my opinion, there are many differences between today’s housing market and the market of ten years ago. The reasons for the previous housing bubble are different than what is happening today.