Do we have a bubble in real estate market?

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Many people are asking this question, and for me we are not in a situation like that. At least in New England. Normally a bubble happens when you have prices going up without the demand going up during the same time. This is not happening (yet).

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In a country perspective, some data released yesterday was and indication of some relief. After falling for two straight weeks, mortgage application volume rose 2.5 percent in the week of July 2nd (seasonally adjusted) compared to the previous week. The increase was driven entirely by purchase applications. But the total volume is 4.3 percent lower than a year ago, according to the Mortgage Bankers Association, due to continuing weakness in loan refinancing.

For this year the average mortgage rate will be around 4-4.5 percent, but we expect that the number will be around 5% next year, and after this period we maybe expect some decrease in mortgage application. Because of prior regulations the banks are siting in a lot of cash now, and if we don’t have more houses in the market it can be a problem in the near future.

The strong economic growth is one of the responsible for that situation, fortunately. More jobs mean more money available for people to apply for a mortgage, but the home inventory available in the market is very low.

That’s the biggest problem we have now: the low inventory of houses in the market. But also we have the inflation of some important products for building. Prices are going up in a lot of sectors. Last week I talked to a well-known lumber vendor that told me some prices went up more than 30% since last year.

Economic cycles are normal, and up and downs are expected every 8 to 10 years. We are now approaching this time in the US economy. Let’s see what the future brings.

 

 

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