Why This Real Estate Market Is Not a Bubble Ready To Burst

Homeownership is one of the larger goals of many and is commonly regarded as the American Dream. Prior to the 1950’s less than half of the country owned their home while after World War II many veterans sought the assistance of the GI Bill to buy their first house. Since then the rate of homeownership has grown to a current level of over 65%. The incline has been steady with the exception of a few years between 2006 and 2008 during the last bust in the real estate market. Seeing that dip in our not too distant past may make many concerned that we may see this dip occur again. To compare back then to today, here is a closer look at some differences.

Why The Market Crashed Last Time

Back around the year 2006 there were many foreclosures in the market that drove home values down significantly. What happened was many buyers were not exactly qualified for the mortgages that they were approved for. Also, a good amount of homeowners cashed in on a significant amount of equity on their homes. When prices had dropped they found themselves upside down in their mortgages where they walked away from their homes. This flooded even more foreclosures to the market resulting in lower neighborhood home values. 

Why The Real Estate Market is Different Today

Today’s real estate market is different for two main reasons. For one, the demand for housing is actually real as opposed to then. Back in 2006 banks would create demand by lowering lending standards so that a larger pool of buyers could qualify for homes that normally would not. Today’s buyers as well as those refinancing are up against much stricter qualifications than back then. So by contrast today the demand for homeownership is real especially where the value and importance of home has increased more so since the recent pandemic. 

Another reason why today’s market is different is that homeowners are not using their homes like they did back then as ATMs. In the early 2000s many were thinking the rise of home prices was here to stay so they were pulling out equity and buying more homes, cars or other high ticket items. Soon after when prices dipped they found themselves under water leading to foreclosures. These days homeowners have not forgotten what occurred then and have learned from it and are not following this same behavior.