Reasons We Are Not in a Housing Bubble

[Ken and Ari Walker]

With home values appreciating by 10% in 2020, there has been some speculation that we might be in a housing bubble such as we were a decade ago.  California residents, fear not!  Here are some incredibly significant facts that this time is not like the past:

• Housing supply is extremely limited:  If supply is low, prices naturally increase.  Normal months of inventory for the market is 6 months.  Between 2006-2008 the supply of inventory was just over 5-11 months.  Today it stands at 1.9 months – an historic low.
• Housing demand is real:  In the mid-2000s, people bought houses based on an unrealistic belief that housing values would continue to escalate.  The mortgage industry fed into this craziness by making mortgage money available to just about anyone.  In the present real estate market, demand is real, not fabricated.  The health challenge has defined the meaning of “home” and people are re-evaluating their current home needs leading many to sell and move to larger properties.
• This time households have plenty of equity:  In the mid-2000s, people were using their homes as ATM machines, leaving many homeowners with little or no equity in their homes at a critical time.  As prices began to drop, some homeowners found themselves in a negative equity situation.  Many defaulted which led to a flood of foreclosures.  Today according to Census Bureau data, more than 56.7% of all homes in this country have a minimum of 50% equity.

What can we take from this examination of the present housing market?  With California housing supply at an historic low, demand high and ample equity, homeowners living in pretty much every county of California do not have to fear that we will repeat the mistakes of the last decade.  According to the experts, the real estate market is not going to experience a repeat of the 2008 fiasco.

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