Are we in a housing bubble? My answer is no, and I’ll tell you why.
Are we in a bubble in the Phoenix market?
I have been licensed as a full-time Realtor since 2003, which means I lived through the housing boom and bust. There are some similarities between our market in 2005 during the housing boom and the market we’re in right now, but there are some critical differences as well.
Home buying habits are different. The multiple offer situations that we’re seeing are making some buyers nervous. Some of those are “boomerang buyers” who went through a short sale or foreclosure during the recession and are now able to purchase again, as well as millennial buyers and buyers who witnessed the struggles that their parents went through during the recession.
In 2005 when the bubble happened, we saw a lot of flash sales, or homes selling within a day of being listed on the MLS. We’ve had a lot of flash sales in this current market. In March, we saw the highest number of flash sales since last August. 210 homes sold in March within one day of being on the MLS. While that number is high and indicates the market is moving quickly, it still pales in comparison to the number of flash sales we had in March 2005, which was 1,032 homes.
In 2005, people used to think of their homes as a bank account. We saw a 45% appreciation rate in 2005, where we saw 5% appreciation every month. When we compare this to the last two years, where we have averaged 5% per year, so you’ll see how big of a difference that is.
Most buyers waived appraisal contingencies and those who got appraisals were calling their own appraisers back in 2005. Now, appraisal guidelines have become far more strict. Very few buyers don’t waive appraisal contingencies, so we’re not seeing the same sort of activity as we were in 2005.
Another difference is that lending guidelines were not nearly as loose as they were during the boom. Lenders now have to verify income through tax returns, instead of just stating your income without verifying it. In April 2017, we saw 16% of homes selling over list price. This number is still significantly less than April 2005, which saw 37% of sales that sold over list price.
So, after all of this evidence, I believe that we are not in a bubble, as our market just doesn’t look the same as it did during the housing boom in 2005.
If you have any other questions on this topic or you’re looking to buy or sell your home, give me a call. I’d be happy to help!