Only Time Will Tell...

Only time will tell if real estate is in a bubble that is escalating toward popping. In my 26 years I have never seen a market like this — it seems like everyone is moving and the reasons vary from lifestyle changes like a new baby or retirement, to COVID to interest rates. Whatever the reasons, it is fascinating and also interesting to compare today’s market to the last frenzied market of the early 2000’s and draw your own conclusions. Last March, many involved in the residential housing industry feared the market would be crushed under the pressure of a once-in-a-lifetime pandemic. Instead, Montecito, Santa Barbara and many other real estate markets had one of their best years ever! Home sales and prices were both up substantially over the year before. 2020 was so strong that many now fear the market’s exuberance mirrors that of the last housing boom and, as a result, we’re now headed for another crash. 1. Mortgage standards are nothing like they were back then. During the housing bubble, it was difficult not to get a mortgage. Today, it’s tough to qualify. 2. Prices aren’t soaring out of control. Below is a graph showing annual home price appreciation over the past four years compared to the four years leading up to the height of the housing bubble. 3. We don’t have a surplus of homes on the market. We have a shortage. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory, which is causing an acceleration in home values. 4. New construction isn’t making up the difference in inventory needed. New construction is not filling the void. 5. People are equity rich, not tapped out. Prices have risen nicely over the last few years, leading to over 50% of homes in the country having greater than 50% equity – and owners have not been tapping into it like the last time. Here’s a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007.

Nancy Kogevinas

Luxury Collection Director


DRE: 01209514

Berkshire Hathaway

HomeServices California Properties

1255 Coast Village Road 102C

Montecito, CA 93108

DRE: 01317331

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©2021 Berkshire Hathaway HomeServices California Properties (BHHSCP) is a member of the franchise system of BHH Affiliates LLC. BHH Affiliates LLC and BHHSCP do not guarantee accuracy of all data including measurements, conditions, and features of property. Information is obtained from various sources and will not be verified by broker or MLS. Buyer is advised to independently verify the accuracy of that information.