(And Why It’s All Going To Be Ok)
A recent search on Google using the phrase “2022 housing bubble” yielded nearly 72 million results. Normally if you click deep into the search by pages, the topic begins to water down to unrelated search results. I stopped at 20 pages into my Google search and the results were still ranking very close to my original query. What I concluded is that while there is a lot of talk about a housing bubble, the consensus is that 2022 will NOT experience one. But that doesn’t mean our real estate market is anywhere close to normal.
What Exactly Is A Housing Bubble?
Several web articles define a housing bubble as a “Run-up in housing prices fueled by demand, speculation, and exuberant spending to the point of collapse.”
Let’s break down this definition.
- “Run-up in housing prices fueled by demand” CHECK!
Housing prices increased by double digit percentages in the Central Iowa market in 2021 largely due to extreme demand and record low mortgage rates. - “Speculation” PLAUSIBLE
While we haven’t seen investors out-spending or out-buying the actual for-sale inventory, that doesn’t mean that today’s investor wouldn’t jump at the chance to add to their rental or flip inventory, especially with rent prices skyrocketing. If prices weren’t so high, making it difficult to make the investors numbers work, they would likely be buying up a lot more inventory. - “Exuberant spending to the point of collapse” BUSTED! – at least for now.
And I think this last part of the definition is why most economists are wrong about predicting a housing bubble. They key word here is Exuberant, which Webster defines as “lively energy and excitement”. I can tell you that very few homebuyers looking in today’s real estate market are experiencing excitement. And the only way you can tie “lively energy” to this word is if you consider that today’s homebuyers are racing out the door in the middle of a workday to have a chance at seeing a new property that popped up in their email notification from their REALTOR®. A better description would be an “urgent stampede”
Buyer Bubble
I predict that we are instead, moving toward a Buyer Bubble. My definition of a Buyer Bubble is “A run-up in housing prices fueled by a lack of home inventory, homebuyers experiencing frustration and rejection, and a race to be the first buyer to get their offer accepted but frequently being beat out by competing offers.”
A good homebuyer must be Ready, Willing and Able to purchase a home in virtually any type of market. Being ready can mean one thing to the buyer, another to their lender and yet another to a seller. I believe we currently have a large pool of “ready” homebuyers and a very good-sized pool of “willing” buyers (ones that are actually out searching for and making offers on homes). The buyer’s ability to purchase will be the first sign of this bubble. At some point, home prices will rise faster than buyer wages increase (hasn’t it already?), mortgage interest rates will climb even higher. When this happens, the Buyer Bubble will burst.
When this occurs, and I don’t think it will be 2022, the real estate market will begin its correction. This will not happen overnight. Slowly, we will begin to see home inventory levels start to rise, and marketing time will increase from days to weeks and possibly months. The balance of power will gradually swing back to an even real estate market and then possibly to a buyer’s market.
The world will not come to an end over this process. It is the natural Cycle of Real Estate, and it occurs every 10-15 years. It can experience dips and pauses along the way as outside influences play against this natural cycle (Covid-19). In today’s world of instant news and commentary, media outlets will proclaim that the real estate industry is crashing and write doom and gloom articles. But in the end, all will return to normal, and the cycle of real estate will start all over again.
This Month’s Graphics
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VIA Group REALTORS
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