Are We in a Housing Bubble 2022?
The warning signs are all too familiar. The most common question we are getting right now is, are we in a housing bubble? Is there a market crash?
Let’s look at 3 FACTORS that suggest that we may not be in a housing bubble yet. Also, we are in a war, well, not really in the sense the world is in a war. Also, that is assuming that the conditions stay the way they have been. Obviously, there’s a war going on with Putin. And we don’t know how that will affect the global market, especially the US housing market.
3 Factors to Consider
The housing supply. As you know already, and you’ve heard tons and tons of times, there is a shortage of supply. This supply shortage has been there since 2015, 2016, and 2017. And it seemed like it’s gonna be here for a while. Because the demand for houses is strong, the supply is slow, and the builders cannot keep up with the supply shortage, because it takes a while to build homes and go to the city. What is the supply? Well, right now nationwide, the supply of homes for sale is only 1.8. That means that if no homes come on the market right now, all the homes will sell in one and a half months. Five years ago, the supply of homes was 3.7. This means that if no other homes come on the market, it will take millions and millions of homes to sell in 3.7 months back in the recession times in 2010. That month’s supply had over 12 months to sell. As you can see 1.8 nationwide is a very shortage of supply. And if you look at Anaheim Hills, specifically in Orange County, the supply is less than one month. So there is a big shortage of supply. That’s one factor that’s not going to create a housing bubble.
The housing demand means the homes are going into escrow. The multiple offers out there and the buyer scrambling to buy homes are so high, that it’s been the highest on record. So it’s a head-scratcher, prices are very high. Obviously, they’re very high from five years ago, 2030 40% Higher, and they’re still selling rates as of today, March 24, 2022, is an average of 4.5%, just in December 2021. They were near 3% or 3.2%. They’re almost one point up and buyers are still buying not only with the higher interest rate but with the higher home prices. So the demand is very strong, with high home prices, high-interest rates, and there are still multiple offers. I just wrote an offer on a condo that was listed for $640. There are multiple offers and it’s selling for close to $700,000 in March 2022. So as you can see the demand is very high. The other factor is that the demand is high because rents have skyrocketed. They have been going up four to five to 6% every year for the last four or five years. Even higher in specific areas like Orange County, that stat is much higher. So buyers are fed up with paying high ridiculous rents. So instead of paying three, four, or $5000 a month rent, they’re opting to buy so the high rents are causing also a higher home demand. And also because people work from home, they can move out into different areas like Phoenix in Idaho and Montana Barstow area Victorville area, desert areas, lower-priced homes, that’s creating home prices as well as the home demand.
What we call equity in your homes. Historically, we have the highest equity right now compared to 20, 30, and 40 years ago, right now the average home equity is about $57,000. That means there’s $57,000 worth of equity on an average home in California, that’s $117,000. And I’m assuming in Orange County, that’s over 120, or maybe $150,000 worth of equity. So when this happens, let’s say I lose a job, or I and my spouse lose a job, and we can find a job for a year. So even after a year, when I put my home on the market, I can still sell it and make some money out because I have so much equity. So that indicates that the foreclosure may not be coming as soon as you may think they’re coming because of equity. I can sell my house even after a year and still get some money out of not going to foreclosure or not going through a short sale. So that equity was a very big factor back in 2005, and 2006. A lot of the homeowners use their equity as their ATM machines. They pulled out the money, bought boats, went on vacation remodel, and blew the money. But in the last 10 years, a lot of the homeowners learned the hard way they protected their equity and did not use it. So it’s still there with all these factors, low-interest rates with the three factors low supplies high demand high equity assuming the terms and conditions remain the same we don’t see a bubble yet but who knows.