No, California is Not in a Housing Bubble

February 18, 2021

Many are still afraid to make their move in the housing market fearing that we’re just in a housing bubble and would result in a housing crash similar to what happened more than a decade ago. But these are reasons backed up by data why this season is very much different from that.

Housing Supply is Extremely Limited

Let’s recall for a moment the law of supply and demand. High demand of any product with a very low supply naturally increases the price of the product and when the opposite happens, prices decrease.
Now let’s look at the current market. The normal months’ supply of inventory for the housing market is 6 months. If it takes longer than that, it’s called the buyer’s market. If it takes shorter than 6 months, we call it the seller’s market.
During the years 2006-2008, despite the months’ supply lengthening from 5 months to 11 months, prices still continued to increase. Now if we look at the months’ supply for the last 6 months, inventory is under 3 MONTHS. Currently, it’s at 1.9 months, a very short time as compared to any other period of time in the past!
With these numbers, we can naturally expect that prices will continue to increase as the average months on the market stay below the 6-month time.

Housing Demand is Real.

Unlike the phenomenon that occurred in the mid-2000s, we are not in a house buying frenzy just based on an unrealistic and emotion-based belief that housing values would continue to rise. The demand is real based on 2 factors.
First is that millennials, who are driving the housing market, are now in the stage of settling down, having a stable income, and establishing their own family. That factor alone has spiked the demand for houses.
The second one is the natural result of the ongoing pandemic. Housing needs started to be different for each household, causing a need to relocate or look for a home that would suit the family’s current needs. Some factors that have contributed to the change of needs is the rise of employees working from home, and the need for rooms that serve as home offices or classrooms for students in the family.

Households have Plenty of Equity

Let us look at what the 2020 US Home Equity Report of ATTOM Data Solutions said,
“17.8 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value…The count of equity-rich properties in the fourth quarter of 2020 represented 30.2 percent, or about one in three, of the 59 million mortgaged homes in the United States.”
To add to that, the top equity-rich counties in the country is concentrated in San Francisco Bay area of California! To be specific, 38 out of the top 40 are in California. This is great news!
If you still have some questions about the latest trend happening in the housing market, call us! We have the answers.

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