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Why Today's Market Is Not a Bubble Ready To Burst

Why Today's Market Is Not a Bubble Ready To Burst

Homeownership is one of the biggest life goals of many and is often regarded as the American Dream. Before the 1950’s less than half of the United States population owned their home while after World War II many veterans sought the assistance of the GI Bill to buy their first home. Since this time the rate of homeownership has flourished to a current level of over 65%. The growth has been fairly steady with the exception of a few years between 2006 and 2008 when we experienced the last bust in the market. Seeing that dip in our not-too-distant past may make many concerned that we may see this happen again. To compare that period to now, here is a closer look at some differences.
 

Why The Market Had Crashed

Back in 2006, there were many foreclosures in the market that drove home values down tremendously. What happened was many buyers were not exactly qualified for the mortgages that they were approved for. Also, many homeowners cashed in on a significant amount of equity on their homes. When prices had dropped they found themselves upside down where they walked away from their homes. This added even more foreclosures to the market resulting in lower widespread home values. 
 

Why The Market is Different Today

Today’s real estate market is not the same for two main reasons. For one, the demand for housing is actually real this time. Back in 2006 banks would create demand by lowering lending standards so that a larger pool of buyers could qualify for properties that normally would not. Today’s property buyers as well as those who own homes and are refinancing are facing much stricter qualifications than back then. So by contrast today the demand for homeownership is real especially where the importance of homes has increased in value due to the recent pandemic. 
 
Another big factor in why today’s market is different is that homeowners are not using their homes like they did back then as ATMs. In the early 2000s, many thought the rise in home prices was here to stay so they were pulling out equity and buying more homes, cars, or other high-ticket items. Soon after when prices dropped they found themselves far under water which led to many foreclosures. Nowadays homeowners have not forgotten what happened then and have learned from it and are not following this same behavior. 

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