Can the housing market sustain the craziness of the last six months? That’s the question that everyone in the industry, buyers and sellers are now asking. The similarities between now and the early 2000’s are startling. The old saying ” If you don’t learn the lessons of the past, you are doomed to repeat them” should prevent the mistakes that were made then from happening again.
Calling a bubble while a) looking at an incredibly short time frame and b) not examining what might be the cause of price increases is fairly irresponsible. And comparing what we’re seeing to 2005 seems like one hell of a stretch, if for no other reason than the 2005 bubble was fueled by the prevalence of garbage loans and lending standards. Ask any buyer today how much fun it is to deal with their lender’s underwriting department and they’ll tell you we’re nowhere near the No Income, No Job, No Problem buyer that actually made it through during that time.
It appears that demand far outweighs supply. The increased demand is not the real story. Demand overall is only up slightly. The real issue is the 50% reduction in inventory causing the demand to be concentrated on fewer properties. If the market were not being manipulated by the banks, the rising demand would be met with increased liquidation of distressed properties.
What are some of the factors that could interrupt the housing market recovery? Mortgage rates recently crept above 4% and the expectation for future increases are strong. This could hinder the affordability for many buyers from purchasing a home in a specific community. Using Davis, Ca housing for instance, the average sales price is $496,000. If rates continue the upward trend, this could push many families into surrounding towns such as Woodland or Dixon.
The diminished inventory is the main reason for the housing turn around this year. If inventory picked up, this could certainly have a negative impact on the upsurge in home prices. Nationwide, home prices are up over 12% this year. It’s unlikely prices will escalate at the same numbers next. A 2% to 3% increase in home prices would be a more normal improvement based on history. Please visit my website www.JohnnyBrooksHomes.com for helpful tips on buying or selling a home, scan my informative blogs and easy access to view local area homes for sale in Davis, California and the surrounding communities.