Is The U.S. In Another Housing Bubble? - YouTube

Some big numbers coming out of the housing market today and

they're not looking pretty if you're looking to buy or rent,

it's all getting even more expensive. Home prices in the US

have climbed at a record pace during the pandemic. The median

home price reached over $363,000 in June 2021, a 23.4% increase

from 2020. Many of these houses are being sold above their

asking price, often entirely in cash, with bidding wars becoming

the new norm to weed out the competition. At the beginning of

the pandemic, the Fed cut interest rates to zero and that

dropped mortgage rates to historical lows. And as soon as

people figured out how to buy a home in a safe manner, with like

social distancing, people came right back to the housing

market. So you can see in just basically the last 15 months or

so, we've seen a dramatic acceleration in home price

growth to levels we haven't seen in decades. How hot is it? It's

turning cold. existing home sales falling in March, but at

least in part, because there just aren't enough homes to buy.

While the market has cooled down considerably in June compared to

its peak, fears of a housing bubble are becoming prevalent

among many homeowners. I think it was sticker shock. I think a

lot of people got in there and said, I just can't afford this.

And that's why home sales came down. Almost every conversation

that I've had over the past decade is, well, one, there's

this fear that we might find ourselves in another crash. And

buyers don't want to be the ones holding the bag in the middle of

that transition of a shifting market. If a housing bubble were

to happen, it would mean that a very large portion of Americans

wealth are tied up in risky assets and they can lose a lot

of their wealth as soon as those home prices drop. So is America

currently in another housing bubble? And what are the signs

that can help investors predict an oncoming crash?

A housing bubble occurs when strong demand and wild

speculation drive up the price of residential real estate to

the point of collapse. It's hard to look at any one data

indicator to know whether we're in a housing bubble or not. The

signs that I would look for are actually more intangible kind of

a mindset that people start to adopt. If people go into buying

a home thinking that they're going to get this instant

return. If you see a lot of speculators in the market

bidding up prices. If you see a lot of people or homebuyers

buying homes with no money down or very little money down. Those

are some telltale signs.

If you see credit too easy, then that can be a telltale sign as

well. If a bubble is left unchecked supply will continue

to rise in order to meet the strong demand and prices will

climb beyond a reasonable amount. When demand suddenly and

unexpectedly decreases, it leads to a sharp decline in housing

prices, bursting the bubble. Housing bubbles eventually pop

because people start to realize that what's going on isn't

sustainable. As soon as people see their neighbor selling their

home or maybe their neighbor accepts a little bit less than

what homes were worth when they bought, then they may start to

get nervous and sell as well and then it becomes like a cascade.

Bubbles tend to burst pretty quickly. That's why, you know,

one day you might have your own go down in value like 20%

because the bubble burst. But sometimes the market requires a

more drastic incident to crash on a national level.

Catastrophic economic events. That's it, you need a

catastrophic economic event to make a housing bubble pop, you

can definitely have a pullback in the heat in the housing

market. But to really have that market crash, there needs to be

that event. There have been numerous housing bubbles

throughout history going back as early as 1837. Compared to other

equity busts that occur on average every 13 years, it's far

less frequent. However, the International Monetary Fund

discovered that housing crashes usually last nearly twice as

long with output losses that are nearly twice as large, leaving a

much more detrimental impact on the economy. The 2008 financial

crisis is a prime example of how a real estate bubble could

potentially contribute to an economic meltdown. A lot of

people got a first-hand experience in what it's like to

see your home go down in value. Some people end up losing their

homes if they weren't able to continue making their mortgage

payments. And then they couldn't sell at a higher value than what

they bought it for so they'd end up having to take the loss

themselves or end up in foreclosure. So all of that can

be very damaging to people and I think it's very understandable

that people are concerned about that happening again. Demand off

the charts, prices rising at the fastest pace in 15 years. But is

the market too hot? Is it overheating? A bubble as they

say? So is the recent real estate rush a sign of a housing

bubble? According to most experts, the market is shaping

up to look more like a boom rather than a bubble. I don't

expect

that we're going to see a house price crash. I don't think we're

in a bubble. We say bubble because we can't believe how

much prices have gone up. But really a bubble tends to be

something that's inflated that could burst at any minute and

change. And that's not really the case here. While speculation

certainly is a factor, the main cause for today's demand is in

the low mortgage rates. At th start of the pandemic in Marc

2020, the 30 year fixed-rat mortgage set at 3.45%. In Jul

2021, that number had dropped t 2.87%. We've got 30 year fixe

-rate mortgage rates for much o the last several months belo

3%. That's a phenomenal rate It's rock bottom. It's record

ow. I don't see them going any lower. But that is one of the

easons why that has led to this pickup in demand to buy homes

nd has added the fuel necessary o push home prices up. Supply is

also an issue. According to the ational Association of Realtors

the US has under built its housing needs by at least 5.5

million units over the past 2 years. That's a stark compariso

to the previous housing bubble n 2008 when overbuilding was th

issue. In my town, which is Mar lehead, Massachusetts, as

of this morning, we had 17 singl family homes on the market. 17

And that's not even c nsidered bad. Some of the s

rrounding towns, the town next oor, they have five single

amily homes. So we've got eally the demand and supply

orces coming together. We've ot a boost in demand that's

ueled by record low mortgage ates and we've got a shrinkage o

supply as many of the older ho eowners decided to postpone li

ting their home for sale and wai until a later date when the pan

emic was in the history boo s. So between more demand les

supply, prices are up. And the are up at the fastest pace sinc

the 1970s. There also have 't been any signs of a lend

ng bubble, which is often asso iated with housing busts. Most

of the new mortgages today are ixed-rate compared to the risk

er adjustable-rate mort ages in the past. Subprime loan

are those loans made to borr wers or to applicants who have

very, very low credit scor s. Those are gone from the mark

tplace. What's also gone are he 'liar loans'. Just about al

of the mortgages today are fu ly documented - documenting

ncome, documenting employment, documenting financial assets so

that both the borrower a d the lender have some assuranc

that the borrower has the fina cial capability to manage t

at mortgage over time. Furtherm re, rapidly rising home prices s

w a correction in June 2021, af er sales of newly built homes dr

pped to the lowest level si ce the early days of the pand

mic in April 2020. I think it was sticker shock. I think a

ot of people got in there an said, I just can't afford t

is and that's why home sales cam down. We did see some more supp

y come onto the market an that's helpful. That's a lot o

sellers saying, "Well, if this is the height of the market, I

want to get in now." But aga n, they're not going to get

that top dollar if people can't afford it. So I think we're

t kind of a turning point as in he housing market is cooling d

wn on sales but prices may st y elevated if we don't get enou

h supply in there to meet the cu rent demand, which does still

xist.

The US might be safe from a housing bubble at the moment

ut that doesn't mean another rash will never happen again.

ut there are certain indicators hat could signal danger on the

orizon. What would be unusual w ere you should fear about

ome prices really startin to plummet is if you look ar

und and you see all this new construction in

our neighborhood and yet h me prices aren't moderating at

ll despite there being all t is added inventory. If you se

a whole lot of flips, a lot of investors coming in, doing

modest improvements to the home nd then getting a whole lot m

re than they put in when they nd up selling. That would be a

ign that the housing marke is starting to look a littl

bit unhealthy. While the thoug t of another crash is certa

nly scary, experts say that real estate crash similar to th

one during the 2008 finan ial crisis is unlikely to occur

again. The market today is not i danger of a housing bubbl

bursting, because every ne out there who owns a home

as a mortgage that was under ritten responsibly. Some of th

se changes were due to the Dodd- rank Act, which also then creat

d the Consumer Financial Prote tion Bureau and through some

f the regulations that have een promulgated, that has rea

ly assured that mortgages are underwritten in a prudent fas

ion and provide

for mortgages that can lead to sustainable home ownership or

the home buyer over time. But for both current and potential

homeowners that remain worried there are certain measures tha

can be taken to lessen the risk If you're a home buyer today

and you're concerned that price are overheating and you'r

buying at the top of the market the most important thing yo

should do is not overpay fo your house. If you feel th

price is higher than what you'r comfortable with, higher th

n what you think the true econom c value of the home is then s

ep back from it. You don't need to buy now. The mindset that I w

uld encourage homeowners to hav is a very long-term mindset.

t doesn't really matter if home alues go down for a couple of

ears if you're gonna hold and ot sell for a decade. So I

ould just keep your eye on the long term goals. Make sure that

ou have enough savings th t you could keep paying you

mortgage payment, even if yo lost a job, even if you lost

ome income so you can ride out ny temporary dip in the housi

g market.