Skip To Content

    What a Housing Bubble is and why we’re not in one now

    Rising home prices in the midst of a global pandemic have many Utah homeowners feeling nervous about the possibility of another housing bubble. While prices have increased in some parts of the state by as much as 11%, it’s nothing like the mid 2000’s. There are three main factors keeping the real estate market strong in 2021.

     

    Increased Demand

    While a typical housing bubble is driven by an increase in demand, the need for more housing isn’t going anywhere anytime soon. Market oversaturation is unlikely to happen. Approximately 52% of adults between the ages of 18 to 29 are still living at home and need somewhere to go. 

    The pandemic has also caused a huge influx of people leaving larger cities and moving to states like Utah with lower home prices and property taxes. The influx has exacerbated a market that already has record low inventory. In 2020, new construction home permits rose by 9.6% for single family homes and by 17.5% for townhomes and duplexes. 

     

    Record Low Inventory

    The increase in demand is magnified by historically low inventory levels. New listings between May and August of 2020 were down by 31% compared to 2019. The drop in inventory creates a more competitive market and an increase in buyers looking to build because of the shortage.

    The big difference between the current market and that of the real estate boom that led to the Great Recession is the implementation of additional regulations surrounding subprime loan practices. Home buyers are held to a high standard and required to prove they can afford the home they are buying. While supply and demand is fueling rising prices, it is ultimately sustainable.  

     

    Historically Low Mortgage Rates

    Mortgage rates have never been as low as they are right now. While prices have increased, the low rates make purchasing a home affordable even for first time buyers. The low rates also incentivize many to either refinance their existing home or look into purchasing a new home. With the median sales price increasing during 2020, the declining interest rate meant the average mortgage rate shrank by 1.2%.

     

    Conclusion:

    Homes have already started to appreciate in 2021. The estimated appreciation for Utah County homes valued at $400K is approximately 17%. With Utah’s low unemployment rate, the housing market will likely continue to remain strong, providing a ton of opportunity for anyone looking to sell their home. While many are tempted to rent for a time and hope for lower prices in the future, it’s unlikely the market will decline and buyers may miss out on low rates as rates are expected to gradually begin to rise. 

    Despite the pandemic, the real estate market has remained as strong as ever. If you are interested in purchasing or selling a home, we’d love to answer any questions you may have. Contact us at {contact info.}

     

    Trackback from your site.

    Leave a Reply