What's Different About This Housing 'Bubble'

Flashback to 2008. The Dark Knight was wowing superhero fans on the big screen, Flo-Rida and T-Pain were singing about how shawty got Low, and ER was hurtling toward its series finale on television. 

Oh, and banks foreclosed on more than 3.1 million homes – meaning one in every 54 households received a notice that their presence in their home was no longer required. . 

Fast-forward 14 years. The Batman is on the big screen, Flo-Rida is still working on his fifth studio album, and ER’s Anthony Hall wasn’t able to reprise his character in the recently released Top Gun: Maverick because Goose is, well, still dead. 

Also different in 2022 are the forces behind the current housing market that are creating what some are calling a bubble. If it is, indeed, a bubble, the pop likely will be far different and far less damaging than its 2008 predecessor. Here’s why.

The 2008 Housing Crisis

The housing market that fueled the 2008 boom in foreclosures and misery was fueled by one thing and one thing only: Greed. Gordon Gecko famously said “Greed is good,” but it wasn’t good when it was shown by the average American and the below-average American banker in the run-up to the 2008 pop. 

Back then, people who should have known they couldn’t afford the home they wanted to purchase because they didn’t have the money in the bank or the income coming in to, ya know, pay for it were emboldened by lenders who looked at these people’s finances and still said, “Here’s your money!” 

A lack of adequate banking oversight mixed with unscrupulous lenders and the mindset of homeownership being an American right and not a privilege led to a boom in demand for homes. 

Put it this way: If you saw your neighbor Billy moving out of your apartment complex and into a fancy home in the suburbs and you knew your income, while not great, certainly was better than Billy’s, you’d be racing to the bank too. 

Of course, when you did race to the bank, there should have been someone there who said, “Yeah, we might have lent money to Billy, but that was a mistake and your income doesn’t rise to the level to make us feel comfortable with lending you a lawn mower, let alone enough money to buy a home.” Instead, these folks simply said, “Well, we qualified Billy, and you’re certainly more qualified than him to borrow even more of our money.” 

Thus, demand outpaced supply, and whether it’s hot dogs or houses, when demand exceeds supply, prices rise. Then, a $200,000 home became, say, a $250,000 home – neither of which were often affordable for the people saying they could afford them. 

What’s happening now

The current housing market is being driven by different forces. While greed might play a role in it, it is small compared to the true drivers of this market: age and illness. 

At its core, the dramatic rise in home values over the past year-plus still hinges on supply and demand, but the primary driver of this is not loans being given to people who really shouldn’t qualify for them. Rather, it’s being driven by a whole bunch of people affectionately known as “Generation Z” reaching the age where buying a home is the next step in adulthood.

Even if there were no other forces at play in the market, there still would have been a rise in home values, all other things being equal. 

But of course, all other things are never equal, and the forces on the housing market over the past year have been as far from equal as you can imagine. 

First, there’s everyone’s favorite 21st century scapegoat: COVID. Here’s how it applies here. 

• At first, COVID led to a lot of pent-up demand. People who would have bought a house in the first half of 2020 simply waited. That meant that, when vaccines became a thing and people started to get back to what looks to be the new normal of life, these folks came into the market along with everyone who normally would have been looking to buy a home at that time. 
• Then, a second COVID-related thing happened. COVID did a lot of damage to a lot of industries. People lost their jobs, and the government sent out some substantial checks – not just to those who lost their jobs, but to everyone. For those who worked in industries not hurt – and perhaps even helped – by COVID, purchasing power increased dramatically. Suddenly, stimulus-infused families could afford bigger homes in better neighborhoods, so they entered the market. 

Next, many of those same people were joined by others who worked in jobs in which company leadership realized attendance at an office wasn’t needed. This freed up even more people, suddenly able to move further away from their jobs, to enter the housing market in search of those same bigger homes in better neighborhoods. 

Add all of these factors together and you had the equivalent of a fire hose of demand flooding a housing market with a thimbleful of supply. 

The result isn’t surprising: Prices of homes – especially those in desirable neighborhoods – skyrocketed. 

So you end up with situations like we saw recently with a home in Kirkwood, in which a home listed for roughly $500,000 went more than $700,000. It was not uncommon as recently as last month for a well-priced home in a good neighborhood to see not just 50-plus showings but 50-plus offers. 

Will this bubble burst? 

The short answer is “yes,” but that’s too gloom-and-doom. Experts who say there’s a coming foreclosure crisis are showing they aren’t really experts. There is no coming foreclosure crisis, because this housing “bubble” isn’t inflated by bad loans. Barring unforeseen economic woes (and there are plenty of potholes to be mindful of right now), you’re not going to see a wave of foreclosures like you did in 2008. 

You’re not going to see this continued rise in home values either. In fact, it is entirely reasonable to expect home values to decrease at some point. Exactly when that point comes will be determined by a variety of factors, including how well we’re able to manage COVID variants and how well the Fed is able to tame inflation with interest rate increases without causing a brutal recession. 

The law of supply and demand has been at play in our species since its inception. Scarcity creates irrationality, and we’ve seen some of that in this housing market. It is safe to say that we’re likely at or perhaps even past the peak of the housing market for this cycle. That said, you likely will not see a dramatic drop in the value of your home, and if you’re waiting on the sidelines to buy thinking you’ll be able to scoop up a foreclosure next year, you’ll probably still be waiting for a good, long while. 

Bottom line? If this bubble bursts, it’ll be more like a slow leak in a tire than a massive blowout that sends the average American careening through a guardrail. 

What This Means For Sellers

If you own a home and are thinking about downsizing, moving into an apartment or have no more need for a second home, now is absolutely the time to sell. Your home would be a welcomed addition to the market for the many, many buyers in search of a good place to live. 

It’s more tricky if you have a home to sell but want to buy something new without scaling back on your desires. Sure, you can get a pretty penny for what you’re selling, but finding a good deal for something similar to what you’re selling is going to be a challenge. It’s not an insurmountable challenge, mind you, but it is, indeed, a challenge.

The key for you is to have an expert real estate team list your home and give you the advantages to help you sell your home for the best price while working to time your sale and your purchase as perfectly as possible. This can, indeed, happen. But now is definitely not the time to think you can skirt with a part-time Realtor or someone who just got into the business. 

What This Means For Buyers

Good deals are out there. They’re just hard to find, and you have to be creative to land them. If you are prepared for the possibile disappointment of putting in a great offer only to have a seller go with a different one you find ridiculous, then you’re in a good place to buy. If you’ve got some time on your hands and don’t absolutely need to buy and can be in the market for at least a few months, you’re in good shape too. 

The key thing as a buyer to know right now is that you have to be able to act fast and decisively when you find a home you want. That means getting pre-approved for a loan before you start looking so that, when you find a home on which to put an offer, you’re ready to go. 

It also means you should find an experienced real estate team that has great relationships with other Realtors and expertise in writing offers that grab sellers’ attention. That’s where The Allen Brake Team can help most. We have more than 100 years of combined real estate experience and specialists who handle every step of the experience. We are committed to the Calm & Confident Home Sales Experience, a way of doing business that gives our clients an advantage when they’re looking for the home of their dreams. 

It might not be easy to find that home, but when you’re working with the right team, it’ll be easier – and it’ll be worth it. 

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