Despite the public's fears that the real estate market is in a housing bubble, there are market fundamentals that show that there are legitimate reasons for rising home prices. "Shifts in disposable income, the cost of credit and access to it, supply disruptions, and rising labor and raw construction materials costs are among the economic reasons for sustained real house-price gains," per the Dallas Fed report in March.  The sharp increase in home prices does not necessarily mean a bubble.  The Dallas Fed went on to say, "there is no expectation that fallout from a housing correction would be comparable to the severity of the 2007–09" crisis.

Here are a few factors that are keeping us from having a housing bubble pop.

1) The housing market has a large pool of buyers in the millennial home buyer group and in the Gen Z group that are coming up right behind them.

2) There is more demand for homes than the supply that we have.  A healthy real estate market has 6 months of inventory, but the current market only has an average of 1.7 months of inventory.  The Chattanooga monthly supply of inventory is only 1 month.

3) Borrowers will probably not default on their loans right now.  Lending standards have been tighter since the Great Recession, so the home buyers over the past 10 years have actually been qualified to buy their home.  "Household balance sheets appear to be in better shape, and excessive borrowing does not appear to be fueling the housing market boom."

4) A rash for foreclosures is unlikely.  If people fall behind on their loans, most people have enough equity in their homes to sell them before the house ends up in foreclosure.

5) A light recession is imminent as the Federal Reserve raises interest rates to offset inflation, but we are looking at a fairly light recession with unemployment being so low.  One friend of mine who does investment banking said that the stock market has been so high that it was bound to come down some, which is what we are seeing.

The real estate market fundamentals do not appear to be taking us into a bursting housing bubble.  We simply have more buyers than homes right now, which will continue to push up home prices.  Buying a home right now means that you have to make some choices.  You can choose to wait, but you will end up paying a much higher interest rate on your home in a year or more.  You can choose to pay more than the asking price to secure a home.  Securing a home now locks in your housing payment to protect you against rising rents and rising home prices.  You can make some sacrifices to get into a home now.  The choice is yours.

Call Nathan Walldorf to guide you through buying or selling a home at 423-544-7700.


Source: Forbes Advisor, May 4, 2022


You may also want to check out "Buying a Home Now vs. Buying a Home One Year from Now."