“If you’re in a place where you can still afford your mortgage, and you can stay in your house, even if the market crashes - just keep paying your mortgage, and eventually your home will likely increase in value,” she says. So if a market change does occur nationally, or just in your area, that doesn’t mean you’re in trouble. How would a crash affect me as a homeowner?Īs Bennett says, home prices historically go up over time. Low interest rates are one of the reasons why today’s housing market is so robust. In fact, in some ways, recessions lead to falling mortgage rates, which increase consumer buying power. “A lot of the time, housing prices are kind of doing their own thing.” “Because of the Great Recession, a lot of people put ‘a recession’ and ‘housing prices dropping significantly’ together, but that’s not always the case,” says Bennett. Over the long term, housing prices continue to rise, regardless of an economic recession. We have so many more people than we have houses.” Would a recession cause the housing market to crash? “New construction went down significantly, and we’re not even approaching supply where it was ten years ago. “Nationally, if you look at housing supply, from the Great Recession onward, we’ve never caught up,” says Bennett. Competition for what is available is what’s driving up prices, rather than unvetted mortgages or other speculation. That being said, in many cities around the country right now, supply simply can’t meet demand. “For example, do you have businesses actively coming in, companies that have lots of jobs? Or do you have businesses closing, and job losses? If it’s the latter, then potentially you are headed for a housing bubble - you’ll have people losing their jobs and can’t afford their mortgages, or you won’t have people moving there and you won’t have demand for the housing supply.” “You have to look at the market activity in your city,” says Bennett. So why doesn’t the housing market in late 2021 meet the criteria for a bubble?įirst, it’s important to note that we can’t paint every U.S. GameStop hadn’t discovered a new way to sell games, nor did they pioneer a new business model, and so when the frenzy stopped, the prices dropped - and those still holding the stock were left in the wake of the bubble. “Bubbles occur when there’s a frenzy to buy something, but then the price of whatever you’ve bought fairly quickly drops off because it was never worth what this frenzy made it out to be.”Ī good recent example of a bubble might be the meme stock craze earlier in 2021, when investors pumped up the stock prices of companies like GameStop despite the company having made no real change to its business. “A bubble is when prices increase at a significant pace due to speculation without any real economic activity to back it up,” says Bennett. She explained how you can differentiate a housing bubble from what we’re experiencing in 2021, and may continue to for the foreseeable future. We spoke to one of our in-house experts, Rachel Bennett, a licensed Realtor and team manager based out of Austin, TX. Here’s the short answer: It depends where you live, but in many of the places where prices have gone up significantly, we’re not living through “a bubble” because the rise in prices is tied to economic activity, development, and low supply for high demand. With the way prices have shot up across the country, from Denver to Austin to Atlanta, it feels as though something is off, and that we’re due for a correction. Some people, on some level, may be hoping for a market crash or reset as a way for them to reenter the house-hunting process. Prices have gotten so high, so fast, that many prospective buyers are priced out of their dream home or neighborhood. People's questions around the possibility of a bubble aren't all based on concern, though. It’s the question on the minds of every homeowner, recent home buyer, and aspiring home buyer who has been losing bidding war after bidding war amid skyrocketing competition and rising prices throughout 20: Is there a housing bubble? Put another way, is the housing market going to crash soon, and should I be worried about that?
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