Are we in a real estate bubble?
In about 2004 we started hearing a few (very few) people talk about a housing bubble. By 2005 the stats showed it was real, we just didn’t believe it. Now in 2016 prices are rising steadily and approaching 2005 levels again. So there is talk of another housing bubble. So lets look objectively at the numbers. This Twin Cities, MN housing report has good statistically info:
Housing affordability (page 13) was at 120 in 2006, now it is 180, housing cost is a low % of median income.
Inventory of homes for sale was at about 25,000 in the metro area in 2005. Now it is about 13,000 (page 14).
Similarly Months’ Supply of homes was about 4.5 months, now it is 2.5 (page 15).
Home buyer culture is also very different from 2005. Back then buyers were trying to buy as much home as the banks would let them. Today the buyers we are helping are consistently searching for homes with payment limits they are comfortable with. Often much lower that the bank says they are approved for. It's a much healthier culture.
So are we in a real estate bubble? Nope. Not in the Minneapolis / St. Paul region. There is room in this environment for homes values to increase. The key is “in this environment”. High local employment, a mostly stable political world, and especially very low interest rates are strong positives for real estate. The most likely threat to these “good real estate times” is a substantial interest rate increase.
What to do? Renters: buy now if you can and lock in low fixed rates. Sellers: It may be to early to sell if you are trying to time the market and you don’t plan to buy a replacement home. Investors: buy carefully selected solid deals and lock in low fixed rates while you can.
As always, this is just one person’s opinion. I’ve been right before, and I’ve been wrong… right is better :). In this case I am confident enough that I am quite comfortable making personal real estate decisions based on this data.
Jim Hughes, CRS, ChFC, GRI, ABR, e-PRO, CDPE