Are We In A Housing Bubble And Should You Wait ?

Are We In A Housing Bubble And Should You Wait ?

This week let’s talk a little bit about the perception of a housing bubble right now. Are we in a bubble? There’s a lot of people asking that question as real estate values continue to go up.

It just seems like things are skyrocketing, especially in places like the Denver metro area, a lot of mountain communities are going up a lot. So is this a bubble that we’re experiencing right now? That’s the question on a lot of people’s minds. And more importantly, should you wait until the bubble bursts to buy a home?

So first of all, on the topic of the bubble, my personal opinion is, I do not think this is a housing bubble. And here’s why. It’s just simple supply and demand. I’ve talked about this in other videos. There is just not enough supply for the amount of demand for housing, especially in a place like Colorado, where we have a net influx of people moving to the state every single month. Thousands and thousands of people moving to Colorado, so that just increases the demand even more.

Builders are not building fast enough to support all the demand. In fact, builders are cutting back a little bit because they can’t fulfill all the orders because of supply chain problems and labor issues. So this is further leading to the problem. And we’re actually seeing listing data that’s worse, meaning less listings available than a year ago at this time. So that means that the problem is just getting worse, which is going to further cause prices to go up.

And the thing about it is, one of the factors to look at when you’re buying a home is affordability. What is your monthly payment going to be? If you look at, for example, a $400,000 house at a, I’m just putting a number out there, let’s say 4% interest rate, that might be the same exact payment as a $475,000 house with a 2.75 interest rate, which is more like where interest rates are now. So you can buy more house right now because interest rates are low. That goes into my thoughts about whether it makes sense to wait to buy, to wait for the bubble to burst.

There’s a lot of people that forecast bubbles to burst, for the markets to go down, to wait to invest. And a lot of those people end up missing out on a lot of appreciation, a lot of profits if you’re talking about the stock market. Because they’re sitting on the sidelines, waiting for the bubble to burst, and we just don’t know when or if it’s going to burst.

The Fed just came out with their first policy statement meeting this week, and they announced that they’re going to continue to buy mortgage-backed securities at the same or higher levels for the foreseeable future. So that’s going to further support the housing industry, it’s going to keep interest rates down. And who knows when that’s going to end.

Many people think that with the Biden administration, we’re going to continue to see even more stimulus, more government support of the economy. And that goes right into housing and real estate. So the idea that the bubble’s going to burst sometime here soon, I do not see that this can happen. And by waiting, you might end up with the same house now.

These days a modest house, even in Denver, is 500,000. If you’ve been shopping, you know what I’m talking about. So a $500,000 house let’s say, if that house goes up 10%, which is not inconceivable over the next 12 months, that same house is going to be 550,000, just in one year. Even 7% let’s say, 535,000. So you’ve lost out on $35,000 worth of equity gain. Not to mention if you’re renting right now, you’re paying your landlord’s mortgage payment.

So if you’re paying your mortgage payment instead, you’re paying down that principal balance on your loan every month and getting a little bit more equity that way as well. So there’s a lot of benefits there. Not only that, but let’s say interest rates do go up at some point in the future, 12 months from now, 18, 24 months. So now that house that was 500,000 right now at a 2.75 interest rate, let’s say you wait for the bubble to burst, and it’s two years from now, and that house is 550,000, but you have to pay 3.75 for an interest rate, your payments are going to be a lot higher on that house than you could have had now at a much lower payment before it went up more in price.

So those are just my thoughts on, are we in a bubble? No one has a crystal ball. No one knows for sure. But a lot of the economics behind what’s going on suggest to me at least that we’re not in a bubble, and that it’s an excellent time to buy. Affordability, believe it or not, is at a great level because of the fact that we have such low interest rates. You will have the same, or better payment on a higher-priced house now than you had just a couple years ago or even a year ago for that matter.

Give me a call in the office, text me, or e-mail at 303-670-0137 or baxterteam@fairwaymc.com. I’d be happy to run the numbers for you. See if it makes sense right now, and see what you can qualify for. And once again, my name is RJ Baxter, Fairway Independent Mortgage. Appreciate you guys watching, and have a great rest of your day.