You can’t read a news article or watch a real estate news story nowadays without someone lamenting that the bubble is about to burst. Forbes’ Peter Lane Taylor, however, says not so fast. Stop panic shopping and take a deep breath because this is not the great real estate burst 2.0.
According to Taylor Marr, Lead Economist for Redfin, as told to Forbes, our current market doesn’t meet the definition of a bubble—yet.
“A real estate bubble occurs when home prices escalate beyond what can explained by the fundamentals, like mortgage rates, population growth, or household income growth,” Marr told Forbes. “When expectations of price increases become the driver of price increases themselves instead of fundamentals that creates its own feedback loop. Robert Shiller said it best: ‘A bubble is a kind of social epidemic—a period of feedback where price increases generate enthusiasm among investors, who then bid up prices more, and then it feeds back again and again until prices get too high’.”
While prices have soared, last year’s massive drop in mortgage rates essentially offsets the pricing impact. Couple that with a few rounds of stimulus checks and the rebounding job market, and Taylor suggests that the fundamentals of the current housing boom are structurally sound.
Read more of Taylor’s Forbes column by clicking here.