Some people think that real estate history is repeating because we’re in a situation where home prices are rising. And the prices are rising rapidly. The last time this happened it was the lead-up to the recession. So people are thinking that history going to repeat itself?
The Differences
In my opinion, it won’t. The situation today is different than in the mid 2000s. In today’s market there’s a lack of new construction. Back then there was actually too much new construction. Today there’s a lack of land in prime locations to develop, which is a major limiting factor To go along with that, there’s a shortage of skilled labor and high material prices. And credit requirements now are more stringent. No income verification loans are no longer offered. In fact, you actually need to be able to afford to pay the loan today.
Remember, the cause of the housing crash was not rising home prices. The cause was subprime and low documentation loans. People buying homes were looking to cash in on short term gains. And banks were giving loans to people who couldn’t afford them. Those factors created the conditions for a housing crash.
Recovered Market
The housing market has since recovered from the crash. The median price of a home is now higher than in 2006. And since the recovery, significantly more homes now have positive equity again. However, the main reason that I feel that history won’t repeat itself is that the credit requirement have changed. Subprime mortgages are no longer a factor. Today’s buyers are more credit worthy. There are less foreclosures and short sales are few and far between.
Bottom Line
In addition, the economy is also stronger. More jobs and households are being created. The issue is that there simply aren’t enough homes for these people to purchase. The rapid price rises won’t continue, but they will continue to rise at a more sustainable rate. And, at least for now, interest rates are holding around 4%.
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