A recent article published by CNBC showed that internet searches for the term “housing crash” had gone up 2,450% in the past month. A lot of folks are concerned about a housing market crash. They may be wishing for it, or they may be fearing that it will happen — but they are thinking about it.
I understand the concern. A home is your shelter. A home is not like bitcoin or even holding a piece of gold in your hand. You don’t need either of those to conduct the business of your everyday life. But when the housing bubble burst in the mid-2000s, many Americans were seriously impacted because their house was not only their shelter; it is also tied to work, their kid’s school, and the general well-being of their family. It is part of who you are.
This is why I stress that housing is the cost of shelter to your capacity to own the debt, not an investment. Real estate investors buy to flip a home for a profit or get rental income, but they’re not the majority of buyers in America each year. For the majority of mortgage holders, the loan is the cost of shelter. If taking a mortgage was an investment first and foremost, then the home we purchase would be the one that offered the most incredible long- or short-term return on investment. It would not be the home with the best floor plan, distance to work, how we feel about the city, or the one closest to the school of choice for our children.
Last year and this year have been crazy for real estate. A year ago, I was trying to convince people that the housing market wasn’t going to crash and that if they just waited until July 15 — when the June numbers would be published — they would see real estate start to rebound. People were still buying homes during the pandemic. Ordinary people needed shelter and wanted to take advantage of low mortgage rates and less competition. Think about all those Americans who bought homes to live in last year who are now grateful they don’t have to deal with this unhealthy housing market for buyers.
It’s a seller’s marketplace, but does that make it a bubble?