If you’re considering buying or selling a home in the Twin Cities, you might wonder if the real estate market will crash as it did in 2008. After all, prices have been rising steadily for years, inventory is low, and demand is high. So is this a bubble waiting to burst?
The short answer is no. The Twin Cities real estate market will not crash, and here are some reasons why:
Talk to any lender who survived 2008, and they will tell you about the wild west it was.
- No need to be licensed as a lender
- Proof of income wasn’t needed
- NINJA loans (No payment, no jobs or assets)
You could make 50 grand a year and buy a million-dollar home with an adjustable-rate mortgage. To clarify, all of these things have changed.
Supply and Demand
The prices of homes are being driven up quickly because of the principles of supply and demand. A bidding war will likely happen if you have one house with five buyers. As I write this article, there are only about 1.5 months of inventory for the greater twin cities market.
More on this in the “State of Mortgages” section.
In 2008 builders they got burnt badly. Suddenly, these precious homes were worth a fraction of what they are today. Some builders went under, and some scraped by, so they didn’t want to be left holding the bag.
Labor and Supplies
Yes, lumber is no longer near its insane peaks, but building supplies have become more expensive, like everything else. On top of that, the pandemic saw a wave of laborers leave the field, and now builders are paying top dollar to get their electricians, plumbers, HVAC, painters, etc., into their projects. Because of this, the starter home of $300,000 is damn near impossible to make happen these days.
The State of Mortgages
Buyers were better qualified to go into this. They bought homes that they were qualified for.
- Approximately 40% of homeowners own a home with no mortgage
- 99% of people with a mortgage have a rate below 6%
Consequently, this has stopped many would-be sellers from making a move. Again, adding to that inventory problem. Even if there were a major economic shift, it would be unlikely to affect the housing market when buyers have comfortable or no payments. In the best-case scenario, it would bring you to a more balanced market with around 3 to 6 months of inventory.
What Does this all Mean?
It feels unfair to some that home prices have increased the way they did. It can make a home you have envisioned feel out of sight. While home prices aren’t likely to crash, you can make moves to get the home of your dreams. Homeownership is a journey, and it is incredibly rare for a homeowner ever to own one home in their lifetime. Take the steps to get yourself a foot in the door so you can enjoy the equity ride. Inevitably you will get some equity on the other side to upgrade in a few years. Reach out, and I’ll be happy to help you start the journey!