Bubble or No Bubble, That's the Questions!

Are we in a Housing Bubble? There are a whole lot of quotes and statements by various individuals, knowledgeable or not, about the US being in a housing "Bubble". Everywhere you turn, someone is "hypothecating" about this housing condition, whether they have the facts or not. Many experts have emphatically said, "read my lips, there is no bubble". To support this statement, a variety of explanations ensued with statistics, historical data, current data and the market changes (surging) in many of US cities. I live in Austin, TX, and have just received my Real Estate Broker's License. With the strong increase in home pricing here, Austin showed in the month of May, 2021 a whopping 42% increase in the price of a median home, according to the Austin Board of Realtors; and an overall increase in home sales volume of 116%. All this makes it a prime topic for "Bubble Talk". In my research, and by listening to a number of real estate agents, brokers and experts, I heard one broker explain it in a very logical manner and referring not to a "Global Bubble", but a local and individual bubble. What did he mean was that with the multiple offers realtors and brokers are receiving on houses listed throughout, buyers are competing to gain the upper hand on a purchase, and thereby offering more than list price for a house in which they are interested. Much more than the list price. What is even more interesting, people are paying "CASH" for these homes particularly due to the fact that a similar home in California could garner over $1MM to $2MM, and a much larger house in Texas, in Austin, Dallas or other Texas cities, would sell for $500K to $750K. So, the buyer has no financial problem in paying 30% more for a home listed in Texas, and buy it outright for cash. A colleague of mine listed a $1MM home on Thursday, and accepted an offer (one of 5, I believe) for $1.3MM. That is a 30% over asking price for a luxury home. You see, even if the home was appraised at lower than purchase price, the buyer has no loans to worry about or any debt to default on, hence, this new purchase price establishes a new "Base line" pricing for this particular home and hence does the same for that particular area. When the appraisal comes below the price a buyer pays for a home, then that buyer alone is upside-down on his purchase and price to value is skewed, but has no worries of default on any debt. This type of an upside-down price-to-value creates a "Bubble condition" for that one buyer. Should this buyer be concerned about living in a home he paid for more that it is worth? Not really. Why, because 1) it is paid for, and 2) he can live in it for a time long enough for the value to catch up with the price he paid. And at the rate of home price increases in the past few years in Austin, and anticipating somewhere between 9% and 11% price improvement for 2021/2022, is a reality that we can live in without worry about any bubble bursting. To reiterate, a bubble could be in a single unit purchase, for a single buyer. But, as long as there are no debts to worry about becoming outstanding, or the owner "HAS" to sell, and having "Ma Government" jump in and bail everyone out with our money, banks and all. I believe this condition does exist, and we need to stop worrying about a housing bubble. On the other hand, what the current administration is doing may be another story. So, let's stay diligent, and be sure to get involved in our local town governments to ensure that our local economy, housing, family, and all that made this country the exceptional country that it is, continue to prosper. Charles Nehme Broker Associate JPAR 3601 S. Congress Ave. Suite # B-250 Austin, TX 78704 (512) 658-6819