This is a pressing question, especially with 2008 still fresh enough in many people’s minds. Are we in a real estate bubble?

A lot of conventional wisdom has been laid aside over the last year with the introduction of new trends as well as new work and family living situations. Home prices are rising rapidly all over the country and people are rushing to pay over asking — and well over comps — as they seek to change their housing situations and inventories are remarkably low. 

This might sound like a scary real estate market situation the nation experienced in the not-too-distant past. But are we in a real estate bubble? Most analysts say no.

People’s new relationship with their homes, especially with renewed space concerns due to the pandemic, coupled with low-interest rates, has caused a remarkable increase in sales as well as a drastic increase in prices. Home valuations are rising everywhere, including in Springfield, where home prices rose close to 23% in 2020, and Burke, where home prices rose almost 10% last year.

This run-up in housing prices is what causes consternation among analysts. Generally, experts define a housing bubble, or real estate bubble, as a spike in housing prices fueled by demand, speculation, and exuberant spending… to the point of collapse. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase.

Much of this sounds pretty familiar to what we are experiencing right now. There certainly is very real demand in the real estate market accompanied by abundant spending. But the nation hasn’t yet gotten to the point when demand decreases or stagnates at the same time supply increases, which would result in a sharp drop in prices— or the real estate bubble bursting, if you will. We also aren’t seeing the same speculation that defined other housing bubbles. 

The truth is, housing markets do sometimes go through periods of irrational buoyancy and see prices rise rapidly before falling back in line. 

Bubbles, on the other hand, are driven by speculation, and this is not generally the case with today’s spiking housing market. Today’s demand for homes isn’t coming from house-flipping or investments, but rather from the demand of people looking to change their housing circumstances.

In the mid-2000s, the U.S. economy experienced a widespread real estate bubble that had a direct impact on bringing on the Great Recession, but our current market isn’t setting itself up for the same mortgage defaults and foreclosures. In the mid-2000s, low-interest rates, relaxed lending standards, and extremely low down payment requirements allowed people who would otherwise never have been able to purchase a home to become homeowners. Today, lending standards are much more stringent, and many buyers are sweetening their offers with higher down payments or all-cash deals.

Sure, supply is way down and home prices are soaring while the rest of the economy is more uncertain. But as the pandemic winds down and things start to return to normal with a vaccine (fingers crossed!), these heightened prices may start to slow down as well.  

Analysts talk of a real estate bubble — but don’t define this situation as one — because the truth is that income and wages aren’t growing at the same speed as housing prices, and homes appear to be out of reach for more homebuyers this year as pricing trends continue going up. Home buying is as, if not more, competitive than during the boom and real estate bubble of the mid-2000s, but unlike that time, this situation isn’t due to nefarious lending. It’s simply a supply and demand issue.

OK, so no real estate bubble. What can you do to take advantage or insulate yourself anyway?

Sellers

Buyers are acting fast when they see a home they like… even to the point of buying homes sight unseen! This may tempt you to price your home way up, but as the market regulates and buyers look at comps over more than the last year, your inflated pricing will be obvious and offending. 

Watch your pandemic greed and market your property properly under the direction of a real estate professional and you should have no problem selling with ease. 

Buyers

This is not the time to casually shop around. You need to understand and communicate your priorities to your real estate professional who can help you to shop for and snag the home you need.

Acknowledge what’s within your budget and that it might not be available right away. Stay vigilant and prepare in advance to make a smart offer the day you find your desired home. There’s a lot of heat on the market, but with patience, your home will come.