If it bursts, will houses ever regain their current value?
In: Economics
A bubble is when buyers pay the price not because of some fundamentals suggesting it’s a fair price, but because they believe they’ll be able to sell later for in short order (fundamentals be damned).
What were in now isn’t a bubble, but a supply/demand imbalance. There are more buyers than usual as more people looked to upgrade when COVID meant need for more space, desire for yards and such. At the same time, the people typically selling larger homes and downsizing chose to stay put and not sell — boomers were afraid of strangers touring their homes, couldn’t travel to retirement areas to house hunt, held off on going into nursing/retirement homes due to outbreaks, kept larger homes as adult kids fled apartments alone to live back home. So 2x the demand, 1/2 the supply means prices rose.
But it wasn’t a bubble. As we come out of pandemic, priorities will shift and demand and supply will even out. Prices will level out or might slip a bit but it won’t be a giant drop like we saw in 2008. For one, people can still borrow. Part of the giant drop in ‘08 was difficulty in getting mortgages, limiting demand.
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