Are We In a Real Estate “Boom” or a Real Estate “Bubble”?

Are We In A Real Estate “Boom” or “Bubble”?

There is a lot of discussion out there about whether we are in a real estate boom or a bubble, and I'm here to give you my opinion as well as an important difference between now and the last crash that you might not have heard before.

The biggest factors affecting the real estate market are: low interest rates, low inventory, the way Covid has changed our housing needs. Also contributing to that buyer demand is the millennial generation hitting their peak age for buying a house.

The combination of low inventory and high buyer demand has caused close to a 20% price increase nationwide. So does that mean we are in a real estate bubble that is going to burst? Many experts and economists would say no and I have to agree with that. Based on personal experience I worked through the 2008 real estate crash and could list several reasons why this market is different and why a crash is highly unlikely, but here is one factor that you might not have heard or seen before: and that is that

*U.S. mortgage borrowers during the pandemic have had the highest credit scores than we've seen in more than 15 years. *

Bloomberg just released a chart from a study done by Moody Analytics:

If you look back to 2005, which was the peak before the housing market started to crash, only 43% of mortgage borrowers had a credit score of above 700. So that right there just goes to show that more than 1/2 of people getting mortgages at that time had less than fair credit. Many wouldn't of those people wouldn't have even qualified for a mortgage at today's standards. Fast forward to 2021 amidst a pandemic and 82% of mortgage borrowers had a credit score of over 700. That percentage of higher credit scores shows a big difference in consumer strength between now and right before the crash, and is yet another reason why I feel like this is a boom and definitely not a bubble.

There are too many differences between now and 2005 that would suggest a real estate crash. It is more likely we will see a return to a more normal market

if both interest rates and inventory rise, but until then, the market will remain very busy through the rest of this year and into 2022.

If you have questions about your own local market if you live in Chicagoland, visit my website jennifernewsomrealestate.com to schedule an appointment. I would love to hear from you! have a great weekend.