I get that question a lot, and I’m not the only one. I heard today on a Real Estate Market Recap that the most popular Google search related to real estate is “Is this a bubble?”.
Valid question – There’s a lot happening, and it’s happening fast, so we as real estate professionals are taking a good hard look at exactly what is driving this, and the data is clear – Low inventory, and low mortgage rates (cheap money).
To start, one must look at the principles of home ownership, and that it is the #1 generator of net worth in the USA. To quote Brian Buffini who was running the Recap, “A fixed asset with a fixed payment is one of the greatest hedges against inflation – People are aware of that, and now that’s why there’s even more demand”. Put more simply, the money you pay to purchase and maintain a home, is money that’s going into an appreciating asset, and the demand for that value is increasing rapidly.
Side note to that – when home values go up, so do rents. I know people in North Buffalo who thought $900/mo for a 3 bed apartment in 2012 was bonkers. Fast forward to now, $1,400/mo is the going rate, and climbing.
Low Inventory – In May of 2021 in Erie County, there were 671 single family homes available to purchase. Down from the 1,024 available in May 2020 during the height of the pandemic, and even further down from the 1,484 available in May of 2019. Another way of saying, there is less than half of what is normally available. Simple supply and demand, combined with the fact that once you actually achieve the coveted closing on a house, you have a fixed asset with a fixed payment.
Low mortgage rates – Your dollar is going further. Over the life of your 30 year mortgage, more of your money is going into the equity of the home, and less into the pockets of the banks. This increases purchasing power, hedges against a leveling off or drop in the market, and creates more buyers, creating more demand.
Not-so-honorable-mention of 2008 and the years leading up to it; a real real estate bubble – What happened then is absolutely not what is happening now. In my humble opinion, the best layman’s term analysis of what happened then, is the movie The Big Short, a full fledged Hollywood production starring Christian Bale, Steve Carell, and Ryan Gosling, which is not only entertaining but largely factually correct. Back then, mortgage institutions were far less regulated, and Adjustable Rate mortgages were abundant, disastrous, and not properly disclosed (if at all). Neither of those factors are in play in today’s market.
So, do I think this is a bubble? No. I think demand will go down as inventory increases, but the prices are here to stay. The biggest risk for major drops in purchase prices is mortgage interest rates or inventory going up substantially. Inventory is finally starting to creep up, but all of the major financial players do not see a substantial rate increase in the near future.
All my life I’ve heard “Housing is so cheap in Buffalo”, and I think the market is catching up to what it should’ve always been.
*Median existing home sale price $350k nationally, $224k Erie County currently.
As always, if you or anyone you know are interested in buying or selling real estate anywhere, please contact me.
*This does not constitute legal or financial advice. Please seek professional assistance in those areas before making investment decisions.*