Is There a Bubble Coming in the Housing Market?

Is the current market heading toward another housing bubble? Today we will talk about the housing trends we’re seeing in Southern California.

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Given current interest rates, pricing, and inventory, is a bubble on its way?

Before answering this, let’s define the term “bubble.” A housing bubble refers to a period of rapid, unsustainable growth in the market. What happens after this growth is an equally rapid decline, very much like a bursting bubble. When you feel a bubble burst, fragments go everywhere.

Certain housing corrections and cycles are normal, but bubbles are not. So it’s important to know the difference between them. Based on this, we aren’t likely seeing a bubble on the horizon.

Interest rates are going up, but does that mean that home prices are going to go down? Actually, there is no relation between interest rates and house prices. There have been four times in history when interest rates have gone up over a half percent. And each of these times, prices continued to rise. This is likely because when interest rates go up, there are usually higher wages and higher employment, meaning people are able to afford increased expenses.

With a mortgage, there are tax write-off benefits and equity being built up with each payment you make.

In Southern California, we have just about 1.5 months of inventory. So if you’re a buyer and you come across the right home, you need to make your move. You are either going to pay a landlord's mortgage, or you're going to pay your own. If you find the right house at the right cost, don't worry about timing out the market.

To demonstrate the benefits of homeownership, something our team likes to do is provide people with a rent-to-own analysis. We look at how they much pay for rent compared to what they could get for a monthly mortgage payment of around that same amount.

With a mortgage, there are tax write-off benefits and equity being built up with each payment you make. Sometimes, numbers talk.

If you have any additional questions regarding the current market, please contact us. We would be happy to assist in any way.