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Another Housing Bubble?

Posted By Jim the Realtor On December 3, 2012 @ 7:31 am In Frenzy,Market Conditions,Thinking of Buying?,Thinking of Selling?,Why You Should Hire Jim as your Buyer's Agent,Why You Should List With Jim | 5 Comments

[1]It’s hard to resist jumping on the another-bubble bandwagon when you see houses selling for peak prices and higher – and see sales increasing at the same time.  It feels like full-tilt boogie!

Let’s compare the differences between now and the last bubble:

  1. Most obvious is the 180-degree difference in mortgages.  The big run-up that started in 2003 was fueled by the neg-am option-arms, and no-doc qualifying.  By 2006-2007, anyone with decent credit could borrow $1.5 million with a signature.  Today you must qualify, regardless of size of down payment, and virtually every buyer is choosing a fixed-rate mortgage.
  2. Additional internet tools have made buyers feel better-educated, giving them more confidence to proceed.  It’s a double-edged sword, because you can keep searching for evidence until you find enough to talk yourself out of buying, so it’s the confidence part that is important.  Buyers feel more confident, making them more willing to act – but it doesn’t guurantee smarter decisions.
  3. Last time the market was panicked over “buy now, before you get priced out forever”.  We had never seen a 33% plunge in values, and 5 million people lose their homes. Now people know that losing value is possible, and hopefully are proceeding cautiously – which translates into longer-term residency.  Today’s buyers plan to stay for the foreseeable future.
  4. The buyer pool is older now.  The idea of moving every two years to make a quick buck has changed to the settle-down-and-stay mode.
  5. There are fewer foreclosure stories today than in the previous 3-4 years, making people think the worst is over.  No one knows if it is just a result of banks stopping the foreclosure process, but perception is more important than reality.
  6. Bidding wars are blinding.  Once you lose a few of them, it becomes more about winning, than worrying about price. With more reports of increasing prices, the intensity will increase.

The last bubble burst because exotic financing caused payments to explode.  This time the biggest threat is the potential flood of baby-boomers having to unload their homes to survive – but it seems like everybody is hanging on for now.

Today we are in frenzy conditions, where cautious, careful examinations will keep you on the sidelines.  Do more homework in advance, see as many homes as possible (buyers and sellers) and get good help!


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