One question that we’ve been hearing a lot lately is, “Are we in a bubble?” The real estate market is on fire right now, and the last time we saw something like this was in 2007. That was right before things hit the fan and went berserk. Understandably, there are a lot of people concerned that will happen again.
The truth is that a lot of things about this market are different from the one we saw in 2007. For starters, a lot of the problems back then were man-made. You had Wall Street making money on mortgage-backed securities and asking banks to make more mortgages so they could make more money. With the pressure on banks to lend more mortgages, they lowered their standards. They approved a lot of people who couldn’t afford what they were asking for, and as a result, we had a huge fallout and housing crisis. There was a massive inventory of distressed homes (short sales and foreclosures) and it took us a while to recover the mistakes of that recession.
Our current situation has been a much more natural progression. We’ve had a strong seller’s market for a while now, and low interest rates are keeping demand high while fewer people are selling.
We track the absorption rate, which is how you tell whether we’re in a buyer’s or seller’s market. It’s measured in months of inventory. To calculate it, you take the homes that have sold in the last however many months and divide that by the time you’re working with. That gives you your sales pace, and when you divide that into the current active homes on the market, you get your absorption rate. It provides an understanding of whether the sales pace is fast or slow.
Anything under four months is considered a seller’s market. A 3.5-month supply is more balanced than a 1.5-month supply. As of last week, we had just a 1.4-month supply of inventory. In 17 years of doing this, I’ve never seen a number that low. It’s putting strenuous conditions on buyers, but it’s a great time for sellers.
If you are thinking about buying or selling a home, we can help you navigate the current market to get the deal done. Stay tuned for our next video, where we’ll show you how to enhance your odds of finding the right home if you’re a buyer in this market.
If you have any questions for us, don’t hesitate to reach out via phone or email. We look forward to hearing from you.