Homes are flying off the shelves, prices are skyrocketing. In some areas of Michigan, homes that sold for $175,000 just three years ago are pushing $300,000. Surely we’re in a housing bubble?
It’s easy for homeowners burned during the Great Recession to assume the market is going to crash again, sending prices tumbling and leaving new owners in the lurch. But there are key differences between 2007 and 2022 to consider.
For starters, the mortgage process has changed dramatically since 2007. There are safeguards in place that didn’t exist before. The system, at that time, allowed people with relatively low incomes to purchase homes — creditworthiness was hidden, and when things started to fall apart, homeowners simply didn’t have enough money to continue making payments.
But homeowners are in a very different situation now. According to economists, many low-income households saw their finances boom during the pandemic, with increased unemployment payments, stimulus checks and rising wages. And since mortgage companies are pickier about their lending, creating a bubble is far more difficult than before.
Zillow economists wrote in a report this week that, in fact, fears of a housing bubble are actually making prices worse by contributing to low inventory:
“The expectation of another [housing] crash could contribute to keeping homes so unaffordable. Builders have been firing on all cylinders, and with more homes under construction than any time since 1973, they understandably feel exposed in the event of a housing downturn. If they trim their construction plans out of caution, we will miss out on one of the best hopes we have for net new inventory on the market, and the inventory crunch that’s helped push prices up will persist for longer than expected.”
Indeed, home prices in Michigan are unlikely to decrease significantly until more entry-level inventory is added to the market. It’s an inventory shortage, not a bubble, that’s creating bidding wars and pushing prices through the figurative roof.
What does that mean for buyers? It means now isn’t a bad time to buy a home. In fact, it’s an opportunity to enter the market before prices potentially continue their upward trend. One thing is all but certain: Industry experts aren’t expecting price points to return to their pre-pandemic numbers anytime soon.