We are not in a real estate bubble right now, and here’s why.
Are we in a bubble? That is the question that we constantly get asked by our clients. Some of them have said that they’re going to wait for prices to drop. We’ve been hearing that same statement for three to four years now. Just imagine how those people who decided to wait in 2018 must feel now. Our growth is probably going to slow down, but we don’t expect prices to drop anytime soon, especially given our position as the more affordable location in California. Let’s look at some statistics and talk about why:
The fun thing about statistics is that whoever is presenting them can distort them how they like. For example, we can say that inventory has almost doubled. It went all the way from 0.6 months of inventory to a little under a full month of inventory! Considering we had 13 months of inventory in 2008, our supply is still ridiculously low, and it’s creating a competitive market.
Another one is that prices have gone down. This is somewhat true. Last month, you would get 103% over the asking price on average. This month, that’s down to 102%. It is a drop, but it’s not very much. We still hear from listing agents about houses where you need to come in at 110% or even 120% over asking just to stay competitive with other buyers. If the house is clean and priced correctly, you can still create an incredibly competitive environment, and that holds true no matter how the market is doing.
In summary, we don’t think we’re in a bubble. It might feel like a bubble as our rapid appreciation rates off 10% to 15% level off to a normal rate, like 4%. Don’t listen to the news about this; their job is to sensationalize and create fear. The bubble in 2008 was mainly created by bad loans. Today our loans are much more strict; people’s incomes and assets are actually being verified.
Give us a call if you have any market-related questions. Things vary a lot by area and even by price point, so if you reach out to us, we can give you more specific information and walk you through some strategies. We look forward to hearing from you!
