You’ve probably heard it on the mainstream news. Stories about how improving real estate markets are a sign that we are in another real estate bubble. Don’t believe it. Improving markets don’t mean a bubble.
The stories often talk about homes being sold after a ton of traffic and bidding wars. It has to mean a bubble, right? Wrong. In most cases higher traffic and multiple offers are because of inventory levels.
Inventory in many markets are still at low levels. A healthy real estate market should have about a six month supply of homes. That’s not the case. The national average is 4.7 months supply of homes.
New home construction
Another sign that there is no new bubble is very low new home construction levels. New home construction is about 65% below the peak levels before the bubble burst. Until there is more construction, and more supply of existing homes, there is a problem with scarcity.
Now add in historically low interest rates and you have a lot of competition for existing listings.
Mortgage underwriting standards
Last sign we aren’t in a bubble is mortgage underwriting standards are still quite high. In order to qualify for most mortgages, applicants need to have a FICO credit score of above 740, and have a decent amount in savings for not only a down payment, but also for living expenses for several months.
At the height of the bubble, getting a mortgage was exceedingly easy. So much so that those who really couldn’t afford to buy a home did, causing the burst.
All markets are different
There are markets where homes are overvalued, and others where they aren’t. Every market is different. When all markets start to see the loan-to-value ratio of real estate creeping back to pre-bubble burst levels, then panic. Until then, relax.
If you would like to find out more about the Clearwater Real Estate Market, give Deb a call today! 727-216-9247