I’ve talked to many first time homebuyers in the past few months who all seem to have the same idea; they want to buy, but are waiting for the housing market to crash, or at least “calm down”. It seems everyone is basing their logic off the idea that skyrocketing home values automatically equal another housing bubble, and it doesn’t help that our news media likes to cover only the most sensational news stories. Though we can’t fault them for wanting click bait, the growing sentiment that there’s another housing bubble goes against all the data we have in front of us.
Home values are rising at a rapid pace, but the demand is not artificial like it was 13 years ago. What we are currently dealing with is a housing shortage that was amplified by COVID shutdowns. Even worse, there’s a record number of first time homebuyers in the market. This has caused the perfect storm of demand severely outpacing supply on an already limited product. New construction is finally ramping up, but many experts are predicting that the shortage will not be fully resolved until 5-10 years. Combined with inevitable inflation which directly correlates to home values, there’s not much evidence rising home values will begin to wane anytime soon.
When we look back at the supply/demand relationship in 2008 we see a very different picture. There was an increase in demand to be sure, but it was caused by everyone with a pulse being qualified for a mortgage. Construction companies then ramped up their efforts to meet the new demand, and it blew up in everyone’s face. Ironically, many construction companies are still weary of 2008 when the demand just completely fell off, so they are now being cautious in 2021.
Supply will eventually catch up, but this doesn’t equal a decrease in home values. The most likely scenario is a slow, tapered return to normal over the next 5-10 years. That’s still a 7-8% annual increase on average when we look at the previous 30 years, and that includes the crash of 2008. This also doesn’t take inflation into account, which will most likely bump that number higher going forward. The market does not care what we feel the price of a home should be. Homeowner’s are always going to want top dollar when they sell their home, so why do we think home values are going to magically come down?
Obviously there are many variables to consider when you decide to become a homeowner, and future appreciation is just one. You need to do your research and come to this decision on your own. I would like to remind you to look at the motives behind any source you’re reading with regard to the housing market (yes this includes me). News anchors want a sensational story, loan officers want to sell you a mortgage, and that YouTube video needs clicks. This isn’t saying never trust anyone who has a conflicting interest, but you need to do your own research and come to your own decision when making a major financial decision. However, if you have already made this decision and are simply waiting for the market to crash, I think you are going to be disappointed.