Talk to anyone in the Residential Real Estate industry and they will say the market is crazy. The inventory is at an all time low and demand is great. Home values continue to increase with no end in sight. Some are concerned that we may be in another housing bubble similar to 2008. But unlike 2008 here are a few differences.
Supply and Demand of Homes
The price of real estate is determined by supply and demand. In real estate the supply and demand is measured by Months of Inventory. This is based on the number of homes currently on the market compared to the number of buyers in the market. Months of inventory are determined by taking the number of homes for sale in a certain area divided by the number of home sold in 30 days. For example if an area has 20 homes for sale and in the pasted 30 days 5 of them sold. There would be 4 months of inventory in that area. An area with 6 months of inventory would be a balanced market. If the months of inventory were below 6 months that area would be in a seller market and above 6 months a buyers market. Many areas in Central Texas have been experiencing a seller's market for several years now due to the number of people moving to the area.
Current Housing Demand
The current real estate market demand is not fabricated. Millennials who make up the largest generation in the country are now secure in their perspective carriers, getting married and having children. Man of them have the desire to own a home. With current historically low mortgage interest rates allow them to purchase more home for their money and also makes purchasing a home good financial decision.
During the last housing boom people were caught up in the frenzy to purchase a home. Existing homeowners used there home to cash-out leveraging their home's equity. This left many homeowners with little or no equity in their homes at a critical time. Not long after that home prices began to drop leaving them with negative equity, owing more on the home than the current value. Causing many to default on house payments causing an avalanche of foreclosures.
With historically low inventory of homes for sale and high demand. Even if there was a drop in home prices most homeowners have enough equity to be able to borrow money to help them through a lean time.