Today’s Market Vs. The Great Recession Housing Bubble
If you have been looking into homes for sale in Long Beach or talked with a real estate agent in Long Beach, you likely know that home prices have risen to record highs with no end in sight. May 2022's medium home listing price was a startling $447k, more than one-third of what homes went for three years prior. Homebuyers might see commonalities between the current market and 2006's housing market and might think these high prices are a sign of history repeating.
Today's market is different from the Great Recession. Waiting for a "crash" may not offer buyers hope as people have not overborrowed and homes are not overvalued. While similarities between 2006 and now exist, they are surface-level. Basic economics are at fault; more people are looking to buy than there are homes on the market.
Things Have Changed
2006's bubble happened because lenders were lax and most people treated housing as an investment. Adjustable-rate mortgages with end-term payments, then common, allowed people to get homes only to later discover that those payments would rise beyond affordability. 2006 was full of now-rare predatory lending, financial engineering, and bad borrowing from people with insufficient equity.
Not Enough Homes
There are only two ways to put a home on the market, build one or someone sells an old one.
Builders Struggle to Catch Up
For the past decade, builders have not been creating enough houses to meet demand due to several factors like finding skilled laborers, supply costs, and legislation.
Fewer Sellers Exist
Existing homes occupy most of the market but most homeowners are preferring to renovate over moving. High home prices might seem encouraging to sell but most buyers would have to buy another home and eat those high costs. The only well-positioned people for selling and buying again are either downsizing or moving to cheaper regions.
A Buyer Surplus
Supply constraints mean that fewer homes exist to fight over while open houses are busy. Millennials are now in the prime of their lives for home buying. Remote and hybrid working options also mean that fewer people need to live close to their offices.
Will the Market Cool?
Experts believe that pre-pandemic prices will not return until 2024-2025. Rising mortgage rates will also eliminate some buyers' market presence, indirectly slowing home prices.
What Can Homebuyers Do?
Professional advice suggests that homebuyers should be strategic and patient, look harder and broaden the scope of their search. Watch for new construction, it might take longer but is easier than fighting for "scraps." Any slowdown caused by rising mortgage rates will make the market more manageable for patient buyers.
Wrapping Things Up
Today's housing market may remind some people of the Great Recession's bubble but this ignores the obvious situation; prices are high because of a combination of rising mortgage rates and there being more people looking to buy than there are properties to purchase. If you want to buy in this market, be cautious but do not hope for a crash that will not come.