A question that is floating around more than it seemingly EVER has before right now is…..
….. “Will the real estate market CRASH?!”
Which, when you think about it, it is a funny thing to say when homes are selling quicker than they ever have before.
I am not writing that to be dramatic either, I mean it! This market has homes selling in 21 days ON AVERAGE!! That is WILD!
What is normal you may ask? As of the end of 2017, homes were selling on an average of 87.3 days. (Over a 300% change)
So to think that the market is going to crash due to the fact that lots of people want housing, is kind of silly. BUT I understand it to a point. See, a bubble is what is currently being feared, and one of the biggest and easiest signs to look for in a bubble, is when people are willing to OVER PAY for a product.
So to understand how we are NOT in a bubble, lets dive deeper.
A housing bubble is a very complex and nearly unpredictable wrinkle that can happen within the US Housing Market. So unpredictable I might ad that only one measly guy on wall street saw the 2008 crash coming! Crashes due to a bubble, in all cases, are scary monsters that are seemingly waiting for the ample time to pull the rug out from under the economy.
But it does show signs…
1. It is not as simple as “People are over paying for homes”, to convince me that we are in a housing bubble. People over pay for something ever day it feels like and housing right now is the one under the spotlight.
Now when people are beginning to over pay for a product, what does the company that creates the product typically do? They really only have two choices, make more to fulfill the demand or raise the price.
Since the housing market is REALLY lacking in inventory right now, we are getting to see the housing market naturally raise its price.
2. People are actually NOT paying as much as you think.
What does a $300k home mean to an average consumer? It means a mortgage that is normally 95% or so of the homes value. Which for this $300k home, would have them mortgaging $285k.
Again, what does that mean to the consumer? That $285k only means something, when they find out what they are going to be paying per month.
In todays market, for a $285k mortgage, you will more than likely get a 2.8% interest rate mortgage.
Delaware’s average property taxes are $1200 a year and we will toss in a $200 monthly payment for insurance and PMI.
Will all of those numbers, we have a mortgage payment of $1,477 on a $300k home in 2021
Now what if you bought the same home (for less) back in 2018?
Well the first thing you will find that the value of the home in 2018 would have been 12% cheaper.
Putting the homes new value at $264,000.
One other factor that makes this all a bit tougher, is that interest rates averaged 4.8% that year.
If you bought that home back in 2018 when we were in a more balanced market and got a deal on it at $264,000,
you would still have a higher mortgage payment than if you bought it at the higher price in 2021.
2021 Patment = $1,477 ($300k Home, 3.5% Down w/ 2.8% Interest rate)
2018 Payment = $1,651 ($265k Home, 3.5% Down w/ 4.8% Interest rate)
So is the market going to crash because people are paying WAY to much for homes?!
Or are home buyers out there savvy enough to realize that they are still getting a GREAT deal on the home even though the sticker price is higher?
Time will tell.