Why Today's Real Estate Market Is Not a Bubble Ready To Burst

There are some noteworthy differences between the market in 2006 compared to today

Homeownership is one of the largest goals of many and is often regarded as the American Dream in this country. Before the 1950’s less than half of the country owned a home while after World War II many veterans used the assistance of the GI Bill to purchase their first house. Since then the rate of homeownership has grown to a current level of over 65%. The growth has been steady with the exception of a few years between 2006 and 2008 when we experienced the last bust in the market. Seeing that dip in our not too distant past may make many concerned that we may see this dip occur again. To compare then to now, here is a closer look at some differences.

Why The Market Crashed Before

Back in 2006 there were many foreclosures in the market that drove home values down substantially. What happened was many buyers were not qualified for the mortgages that they were approved for. Also, many homeowners cashed in on a lot of the equity on their homes. When prices had slipped they found themselves upside down where they walked away from their homes. This added even more foreclosure properties to the market resulting in lower neighborhood home values. 

Why The Market is Different Today

Today’s real estate market is different for two big reasons. For one, demand for housing is actually real this time. Back in 2006 banks would create demand by lowering lending standards so that a larger group of buyers could qualify for homes that normally would not. Today’s buyers as well as those refinancing are facing much stricter qualifications than back then. So by contrast today the demand for homeownership is actually real especially where the importance of home has increased in value due to the recent pandemic. 

Another reason why today’s market is different is that homeowners are not using their homes like they did back then as their own ATMs. In the early 2000s many were thinking the rise of home prices would not come to an end so they were pulling out equity and buying more homes, cars or other high ticket items. Soon after when prices plummeted they found themselves under water leading to foreclosures. These days homeowners have not forgotten what happened at that time and have learned from it and are not following this same behavior.