Written By: Alisa Wolfson

Article courtesy of Market Watch - Click here for original post

what to know about the housing market if you want to buy a home right now.

Listen to a just a handful of the stats about the housing market, and it’s easy to see why there’s lots of chatter about whether or not we’re in a housing bubble. While mortgage rate are still holding near historic lows — you can still find 15-year rates near 2% and 30-year rates near 3% — home prices rose 19.5% in September year over year, according to data released by Case-Shiller at the end of November. And the median home price now sits at around $354,000, according to the National Association of Realtors. But a number of experts say we’re not in a housing bubble, and instead are in for a continued rising of prices, though at a more gradual speed.

“To most consumers, a bubble in housing or any other investment is a run up in prices that is very rapid and that is relatively shortly thereafter followed by falling prices,” Realtor.com chief economist Danielle Hale says. “In these bubble cases, those who purchased homes or other investments when prices were high may see the value of their homes or other assets remain below their purchase price for years into the future.”

Housing prices alone don’t mean a bubble

But many pros say it’s unlikely we will see a collapse in home prices, because unlike in 2008, there’s not an oversupply of housing, and instead there is an undersupply: The National Association of Realtors notes that the U.S. has underbuilt housing by at least 5.5 million units, and Hale estimates that we’re about 5 million units short. In fact, she says we’re so under-built that we’re unlikely to see this change in the next five or six years, even if the current pace of construction were to double. Plus, that is happening at a time when supply chain issues are rampant, making many building materials and labor expensive. “With strong buying demand and under-building limiting the amount of housing supply,” Hale says, “we’re likely to see home prices remain high even if reduced affordability limits the pace at which they can grow.”

On the demand side, low mortgage rates — you can still find 15-year rates near 2% and 30-year rates near 3% — are enticing many to buy now and the remote work boom is leading to reshuffling as people reevaluate what they want and need in their home, says Redfin chief economist Daryl Fairweather.  That said, demand is slowing: Lenders issued roughly 3.59 million mortgages in the third quarter of 2021, down from 3.92 million in the second quarter. Concludes Nicole Bachaud, an economic data analyst at Zillow: “The factors driving home value growth are organic and sustainable and we are not at risk of a housing crash like in 2008.” 

In an October report, Goldman Sachs also predicted a continue rise in housing prices, writing: “The supply-demand picture that has been the basis for our call for a multi-year boom in home prices remains intact. Housing inventories remain historically tight, while homes remain relatively affordable despite the recent price increases, and surveys of home buying intentions remain at healthy levels. Our model now projects that home prices will grow a further 16% by the end of 2022.” And CNBC real estate correspondent Diana Olick stated: “A bubble tends to be something that’s inflated that could burst at any minute and change and that’s not really the case here.”

So what’s ahead for the housing market then? (And could they all be wrong?)

Rather than a bubble popping, Bachaud predicts the housing market will become more balanced in the next couple years: “But don’t expect prices to fall, think of it like a car easing off the gas pedal, not hitting the brakes.” Adds Hale: “There’s no question that the growth rate of home prices will slow. Home prices cannot continue to grow faster than incomes for long, but what happens next will shape whether people feel this period was a good year for housing or a bubble.” 

For her part, Ivy Zelman, who called the 2005 market height, says that there are issues in the housing market, but doesn’t predict a full-on bubble popping and focuses concern on markets like Phoenix, Austin, Dallas and Houston. She told Bloomberg: “There are going to be corrections. And I think there are going to be corrections that are more pronounced if rates go higher.  I certainly would be concerned if I was buying a home today in, let’s say, the Phoenix tertiary market in a higher-rate environment.”

And it’s important to remember that few experts predicted the 2008 housing bubble bursting either, and there are plenty of unknowns that could change the course of this market. 

What does this all mean for potential home buyers?

Experts say it’s tough to time the housing market. And if you know you want to buy, and stay in your house for years to come, follow this advice. “Don’t buy more than you can afford. Make sure you can continue to afford your housing payments through a rough patch like a job loss or health emergency,” says Fairweather. And build up savings that will make you more resilient to shifts in the housing market, he adds, so that if there is a downturn, you can ride it out, rather than having to sell.