Basic laws of supply and demand would state that when demand is high and supply is low, the price would also be high. The prices of homes have steadily increased due to the high demand of homes with a tighter supply of available homes for sale. We have noticed a trend in the growth of home prices within the past several months and home prices nationally have not returned to their peak housing price during our last housing boom but some local markets have returned to their peak and some have also surpassed them.
The arguments against the idea of the housing market heading towards another bubble are in reflection of the difference in circumstances that the market is in today, compared to that of 2006. The cost of houses are more than they were previously and the increase in price is due to a higher demand for houses but also a lack of new homes being constructed. One other factor is also the influence of institutions and foreign buyers who are also purchasing homes.
Today, the process of qualifying for a loan is more difficult than it was during our last housing boom. First time home buyers are having a harder time competing for these homes because of larger investor’s setting a floor price that many cannot afford. New owner-occupant homebuyers today need to get a mortgage to finance the purchase. Unlike during the last housing boom, home buyers must have to have a down payment, good credit and enough income to qualify for the debt.
Interest rates today are lower compared to our last housing boom, but the cost of these houses have also increased dramatically. Homeowners are only able to afford to pay the interest of the home and are not paying any of the principles not including the mortgage insurance.
So are we heading towards another housing bubble? Only time will tell, the cost of houses seem to be heading towards higher peaks, higher than that of 2006, but the market that seem to be purchasing these homes are very different.