What Is A Housing Bubble?

As with any industry, the world of real estate is home to its unique terms and phrases. If you are unfamiliar with them, they may be confusing and hard to understand. As your trusted real estate agent at the Lake of the Ozarks, it is my job to help you better understand the world of real estate so you may navigate it more easily. This week, I'm here to take a closer look at a term you may not have heard in a while, but is currently getting tossed around with increasing frequency: housing bubble.

What Is A Housing Bubble?

Simply put, a housing bubble forms when a rapidly increased interest in the housing market causes the number of interested buyers to outweigh supply of available homes. This imbalance can cause prices to rise unusually (and unrealistically) high as buyers vie for the few homes currently on the market. If this process is not reversed, the "bubble" can continue to increase in size until it eventually (and inevitably) bursts.

Depending on the size of the bubble, the aftermath caused by its burst can be minimal or severe. In extreme situations (such as the economic crash of 2008), the housing market can be set back significantly after the bubble bursts. Home prices plummet, and the number of homes on the market far outweigh the number of interested buyers.

Advantages And Disadvantages Of A Housing Bubble

The advantages and disadvantages of housing bubbles are pretty obvious. For sellers, housing bubbles offer a significant advantage in that they will probably be able to sell their home for a higher amount. The sale will also probably go through much more quickly. For buyers, housing bubbles offer a distinct disadvantage in that they will likely end up paying significantly more for a property than they would in other (more normal) conditions.

Are We In A Housing Bubble Currently?

As buyers flock to the Lake of the Ozarks with increasing speed and the number of available homes on the market continues to dwindle, it is easy to see why some people think we might be headed for another housing bubble. However, Keeping Current Matters recently released two blog posts explaining why we are currently not at risk for another housing bubble forming. Here are their main points:

Lending Standards Are High
Before the housing market crash in 2008, the housing bubble was "artificially boosted" because lending standards became incredibly lenient. Almost anyone could get approved for a mortgage loan. Interest rates were high at the time, which meant that lots of unqualified buyers took on large mortgage payments that they ultimately could not afford, which contributed to the crash. Today's buyers, on the other hand, must be able to clearly demonstrate their ability to pay back their mortgage loans. Sales are increasing because buyers have a legitimate interest in the housing market; it's not being artificially inflated by the banks.

Interest Rates Are Still Low
As I just mentioned, one of the factors that contributed to the crash in 2008 was the sheer height of the interest rates at the time. In 2006, the average monthly mortgage payment on a median-priced home in the U.S. was $1,305. In 2015, the average monthly payments on the same types of homes was only $858. Lower interest rates mean lower monthly payments, which in turn mean that buyers are actually able to afford they payments they take on. Because buyers are not over-extending themselves financially, we are simply in the midst of a strong housing market - not a housing bubble that will ultimately lead to a crash.

Remember Me For All Your Real Estate Needs At The Lake!
We are not in a housing bubble currently, but the market is continuing to strengthen. If you have been thinking about selling your home at the Lake of the Ozarks, now is an excellent time to list it. I would be happy to help in any way I can! If you are interested in buying a house at the Lake of the Ozarks, on the other hand, I can help you find homes that will be well within your price range in spite of the aggressive market. Either way, I truly look forward to working with you!

Susan Spica
Professional REALTOR®

BerkShire Hathaway HomeServices
101 Crossings West, Ste. 202
Lake Ozark, MO 65049

Office: (573) 365-6868
Susan's Cell: (573) 280-0484