The Dangers of the Inflating Housing Bubble

Less inventory and higher prices, experts weigh in on the current status of the real estate market.

According to a recent CNBC article, 80 percent of analysts said the already tight supply of homes in the United States will either stay the same or fall over the next 12 months. The lack of affordable inventory has aided in driving up home prices, making it more difficult for buyers to find homes in their budget. With the increasing demand for homes, experts are predicting home prices will continue to rise -- that means the time to buy is now.

Climbing interest rates are also impacting the current state of the real estate market. Currently, rates are sitting around 4.5, but will likely continue to rise. As Camille Canales, a Real Estate Consultant Buckner Canales Group, shared, “At a certain point the rates are going to be at 5 or 6 and that’s still going to be fine, but it’s going to affect how much money you can afford a month on your mortgage. That’s why in the last two years, inventory has been really tight. There are more buyers shopping in non-traditional peak seasons because everyone is trying to get in before prices get higher and before rates go up anymore.”

It appears that both small and large markets are being impacted by peaking home prices. According to City Lab, Cleveland and Chicago are experiencing similar market highs as Los Angeles and Washington, D.C.

S&P CoreLogic Case–Shiller U.S. National Home Price NSA Index, tracked a 6.4 percent annual home price gain for May 2018. Year-over-year increases of 5 percent of every month since August 2016 were also reported. These increases are outpacing worker’s income, so people are being priced out of markets they would historically be able to purchase in.

Millennials are one group being majorly impacted by these rising rates. The infamously overeducated, underpaid demographic can’t afford homes in expensive cities, yet these are the areas where their degrees will hold the most value. Therefore, many of them are choosing to put over 30 percent of their paycheck towards renting according to an article. The article also states that homeownership among high-school graduates age 18 to 34 who head households have fallen by about one-third since 2000. It's now 10% lower than among college graduates vs. just 3% in 2000.

Although a downturn doesn’t seem to be on the horizon, experts say consumers will be able to handle the deflation better than they have in the past, due to the current status of the economy. As Art Yeend, director of business development for the Barent Group, shared with National Mortgage News, "How would [underwater values] impact the borrower's incentive to pay? It would be different this time around because they would be more able to pay.”

With all of these factors in mind, most real estate experts still recommend buying now. Shared Canales, “Right now the pro for buying is getting in before the prices continue to climb.”