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Americans remember all too well the housing bubble of the 2000s that ultimately led to the economic crash of 2007. With the current housing market shift, many fear the same thing could happen again. However, given the differences between what happened 15 years ago and what is happening today, it does not appear that a real estate bubble is in the forecast.
First, a definition may help. According to Bankrate, “A housing bubble, also known as a ‘housing bubble’, occurs when the price of housing rises at a rapid rate, driven by increased demand, limited supply and emotional buying. Once speculators recognize As housing prices rise, they enter the market, further increasing demand.The phenomenon is called a bubble because at some point it will burst.
While this may seem similar to what’s happening in today’s market, here are some key differences that should reassure Utah buyers and sellers.
Utah still faces a housing shortage. To determine if it is a seller’s market or a buyer’s market, realtors look at months of supply inventory (MSI), which measures the number of months it would take the current market to sell the inventory. Norada Real Estate says a balanced market is between four and six months. Less than that is a seller’s market and more is a buyer’s market. Although the current MLS inventory has more than doubled since January, the MSI is still below two months. This means the state has a long way to go before entering a buyer’s market.
Rising interest rates
A housing bubble is usually associated with lower interest rates, but today they are on the rise. In an effort to slow the market, the Federal Reserve recently hiked interest rates by half a percentage point – the biggest hike in 20 years, according to Bankrate. Over the past two years, the market has been so hot that rates had to go back to a more normal level for the market to start adjusting.
Historically low unemployment
Economically, Utah is still booming. The latest data from the Department of Workforce Services indicates that Utah’s unemployment rate continues to be at historic lows. In March 2022, the national unemployment rate was 3.6% and just 2.0% in Utah.
United States popularity
Once a well-kept secret in the Mountain West, people from all over the country have now started flocking to Beehive State thanks to its booming economy, low crime rate, beautiful scenery and other arguments of sale. The American Enterprise Institute reported Utah as one of the top 10 incoming states in 2021 and all that popularity equates to a booming real estate market.
Here is a major difference between 15 years ago and today: Back then, it was quite easy to get a home loan. People were getting loans for amounts far beyond what they could afford, which eventually led to the bursting of the housing bubble. Today? Not really.
In recent years in particular, loan terms have tightened and borrowers must meet certain credit and income requirements to qualify for the loans they need. This decreases the risk of people defaulting on payment.
One of the best news for homeowners these days is the incredible increase in net worth. A recent report by data firm Black Knight found that US homeowners have $153,000 of “workable” home equity, which is the highest on record.
According to Investopedia, “Leveraging your capital allows you to access needed funds without having to sell your home or take out a higher interest rate personal loan.” Because of this, more people are willing to do more to keep their homes instead of moving away from them like they did in the last recession.
Finally, another reason not to fear a housing bubble burst is the historically low rate of foreclosures, even after the COVID-19 pandemic. PR Newswire reports that foreclosure lender repossessions in 2021 are down 49% from 2020 and 98% from 2010. Combine that with record net worth and there’s little chance homeowners will lose. all by a foreclosure.
Need help navigating the real estate market?
Now that your fears about a housing bubble have been dispelled, it might be time to hunt down that new home so you can start enjoying that growing net worth. If you find it difficult to navigate today’s market, contact the real estate experts at The Stern Team. Whether you’re buying or selling, they can help you achieve your goals.