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Are We In Another Bubble?

Ever since the real estate bubble and crash everyone is very hesitant of growth in the real estate market. It is good to question, think of how many people bought a home and were upside down so they couldn’t sell even if they wanted to. With the real estate market being so hot right now – homes selling for above list price in one weekend and buyers getting loans for close to record low interest rates – it is a great time to buy Utah real estate unless we are in another real estate bubble just waiting to pop.

Real estate median prices in May 2015 were less than $2,000 of the highest record median price – which was July 2006. To the average person this may sound like we have climbed too high too quickly and are just waiting for a pop. We think this is still one of the best times to buy or sell.

How do you know? We can’t see into the future, but there are things going on that are very different than when the real estate market crashed. NAR’s chief economist, Lawrence Yun, was recently giving his opinion, stating there are 3 main reasons we aren’t in a bubble:

1. Overall demand for housing is 25 percent lower than it was during the housing boom.
2. New home construction is about half of what it was during the housing boom.
3. Mortgage debt outstanding is 10 percent lower than during the housing boom.

A bubble would be if we got into unsustainable growth. In real estate we like to see about a 4 to 5% increase in home values each year. We see a bubble when we are on a growth pattern of 15 to 20%. We know that can’t last and that is exactly what happened in the mid 2000’s. In Utah County, we are up around 6% from this time last year. That sounds pretty safe to me.

The biggest reason for the increase in price is the tight supply that we have in homes on the market. We are actually selling less homes today than back in in the booming bubble. Right now interest rates are so low that more people want and can afford homes so there aren’t enough homes on the market. Seller should take advantage of the time.

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