You’ve probably heard it over and over again this spring: “we’re in a seller’s market,” “the market is booming,” and other similar statements. This season’s real estate market has been phenomenal – with existing home sales jumping 9% in March, according to the National Association of Realtors.
With the rise of the market, comes the natural rise of home costs, but this doesn’t mean that we are in – or will necessarily enter – another housing bubble. While the housing bubble of 2005 produced similar data as we are seeing now, there are a few significant differences that effectively separate that outcome. According to realtor.com’s Chief Economist, Jonathan Smoke, the following factors can accurately explain why we are not in a housing bubble:
- When you factor in inflation, we are still 30% below the peak of 2005 price appreciation
- When you look at overall market inflation and compare rent to income stats, we’re closer to the mid-nineties market than the 2005 market
- The home price to income ratio is still about 30% lower than it was in 2005
- The higher prices are simply a reflection of the growing economy and of first time homebuyers making a return to the housing market