SPECIAL REPORT: Is There a Housing Bubble?
Your Guide to the Housing & Mortgage Markets
UNDER-SUPPLY OF HOUSES TODAY vs. OVER-SUPPLY OF HOUSES IN 2006-2007.
In the years leading up to the 2006-2007 housing bubble, we were building roughly 50% more homes than we needed every year. This resulted in an over-supply of homes in the US. In the decade leading up to the current housing situation, we were under-building homes to the point where we currently have a shortage of at least 5.5 million homes. This means we currently have an under-supply of homes in the US.
MILLENNIALS AND GEN Z BUYING HOMES TODAY vs. MILLENNIALS TOO YOUNG TO BUY HOMES IN 2006
When the 2006 housing bubble burst, the millennial generation of homebuyers was too young to buy homes. During the decade after that, the millennial generation of homebuyers took longer to form their households and buy their first homes than all the other previous generations. In the past several years, millennial and Gen Z homebuyers have greatly increased the demand for homes. This will likely continue in the months and years ahead because new households will be formed and people will need a place to live.
PEOPLE WERE LOSING THEIR INCOMES AND JOBS vs. A VERY STRONG JOBS MARKET TODAY
When the 2006-2007 housing bubble burst, the economy crashed and many people lost their jobs. It took over six years for the unemployment rate to drop below 5% again. During the COVID recession, it took less than a year for the unemployment rate to drop back below 5%, and it's been running around 4% for the past few years. There are 30% more job openings in today's economy than before the pandemic and three times as many job openings than there were in 2006-2007. This means that people have jobs and they can afford to buy homes.
HOMEOWNERS WERE OVER-LEVERAGED IN 2006 vs. TODAY WHEN HOMEOWNERS ARE VERY MUCH UNDER-LEVERAGED
Many people who bought homes in 2006 did so with little or no money down. When house prices started going down, they immediately had "negative equity" which means they owed a lot more on their mortgages than their homes were worth. This led to a lot of foreclosures. Compare that with today where over 47% of homeowners have more than 50% equity in their homes. This means that home prices would need to plunge by more than half their current value for most homeowners to be in a negative equity situation. This also means there is very little incentive for homeowners to go into foreclosure. That's one reason why the doom and gloom predictions of mass foreclosures after the pandemic never materialized.
THAT'S HOW LONG WE'VE BEEN UNDER-BUILDING HOMES IN THE US, WHICH IS WHY THERE'S A HOUSING SHORTAGE.
Source: Momentifi