Is housing a bubble? Will housing crash? We’ve all heard the stories. Our neighbor or friend put their house up for sale and they received multiple cash offers above list price with no contingencies. Crazy right?

Is Housing A Bubble?

I’ve been in the interest rate markets since 2002. One thing I’ve seen is that trends can last longer than we expect. Another thing I’ve seen is when markets get carried away they eventually hit a ceiling and stall out and/or fall.

What’s driving this run up in housing prices?

• Covid – move from Urban areas to suburbs
• State migration – people are moving from CA, NY, IL into states such as TX, FL, AZ, NC, SC, TN, GA
• Supply – there is a lack of supply for homes
• Interest rates – we are at record low interest rates

Below are some thoughts to keep in mind;

• We are not seeing the crazy bank financing we saw back in the last great recession of 2008-2010
• Real estate prices tend to move slower than stock prices
• 2.3 million mortgage holders are in forbearance programs
• If real estate prices stay elevated, those under forbearance should be able to sell at a profit and pay off their mortgage
• Trillions of dollars have been pushed into the economy by the government

Keep an eye on the following;

• Supply – when we start to see higher supply of homes on the market this may be the start of the trend either stalling out or possibly reversing
• Interest rates – if interest rates rise, affordability will be negatively impacted and watch for real estate prices to be negatively impacted

We sold our home December 2019. When Covid hit in March 2020, we felt like we got out just at the right time. Now with residential real estate prices continuously driving upwards, it doesn’t look like the best timing from a valuation standpoint. For us, it was a good time because our son went to college and our daughter was entering her senior year of high school. My wife and I had not made up our minds where we wanted to live when the kids were both away so we wanted the flexibility. We also had a good amount of equity built up in our home that we wanted to invest into cash flowing multifamily real estate. Yes we will be empty nesters this upcoming fall. Thoughts on our next phase, travel, etc.

Why do I share this story with you?

Residential real estate prices are a big topic of conversation these days. I believe there are real reasons for the rise in residential real estate to values as indicated above. I do not believe the market is being built up by easy bank lending as was the case in the last real estate recession. I do believe that if interest rates rise, it will make it much more difficult for people to afford homes at these prices. When you start to see or hear that interest rates are rising or you see supply on the market start to increase that’s when I would start anticipating a change in residential real estate valuations.

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