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Housing Bubble or Buyer Bubble?

(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 demandCHECK!
    Housing prices increased by double digit percentages in the Central Iowa market in 2021 largely due to extreme demand and record low mortgage rates.
  • SpeculationPLAUSIBLE
    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 collapseBUSTED! – 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.  

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~Les Sulgrove, Vice President

If you are interested in selling your home or purchasing a home, give me a call! I will help you determine your best strategy based on your local market data.

About Les Sulgrove

Les is an Iowa native born in Des Moines and raised in the southwest Iowa town of Bridgewater. He has been a resident of Des Moines since 1982 and has been married to his wife Linda for over 35 years. Together they have 3 grown children, 7 grandchildren and make their home on Des Moines south side. He has been a licensed REALTOR® since 1990 and is Vice President at VIA Group, REALTORS®. Les is the 2011 Past President of the Des Moines Area Association of REALTORS® (DMAAR) and received the award of Salesperson of the Year by DMAAR in 2007 for his involvement and service to the Association. Additionally, he is active at the Iowa Association of REALTORS® and serves on local, state and national committees. He also owns and operates the national technology networking group CyberProfessionals. This group of real estate professionals meets twice annually across the United States to learn from each other and share new marketing ideas with heavy emphasis on current and future technologies and their use in the real estate business. Les’ hobbies include golf, photography and sarcastic humor. He and Linda spend many Saturday mornings from Spring to Fall at the Des Moines Downtown Farmers Market. He enjoys spoiling his grandchildren at every opportunity.

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