The number one question I field these days from clients and friends alike is “So, are we in a housing bubble? Should I wait to buy when the bubble pops? Am I buying at the top of a market ready to crash?”

First off, I think it’s important to define a housing bubble- what is it anyway? Bascially, housing bubbles are caused by an increase in market price of real property until they reach unsustainable heights and then the bubble starts to sink. Usually, buyers are aggravated at this point because their home decreases in value. You may remember the infamous bubble of 2008, created by easy credit access.

Actually, 2008 was a bit more violent- more like a crash, followed by a deep recession, than a bubble peacefully making its way to the ground. However, the market conditions during those bubble years are vastly different from those today. Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR) thinks that the notion of a new housing bubble is “misplaced.”

 First difference: the credit landscape

Yun notes three major differences between current market conditions and 2008. “First, even though the credit conditions appear to be easing somewhat, the move is from overly stringent conditions to not-so overly stringent conditions. It is a far-fetched view to imply the current mortgage approval process in any way resembles the loosey-goosey, easy subprime mortgage access conditions of a decade ago.” My clients who have recently had to obtain a loan for their home purchase can attest to the mountains of paperwork and documentation requirements still in place to get approved. Acceptable credit scores still remain in the 740-750 range for Fannie Mae-backed mortgages and 690-710 for FHA mortgages.

Second difference: Affordability

Yes, home prices are increasing 3 to 4 times faster than the national average wage growth rate, but we also have historically low mortgage rates to ease affordability. “For someone making a 20% down payment, the monthly mortgage payment at today’s mortgage rates would take up 15% of a person’s gross income. During the bubble years, it was reaching 25% of income,” writes Yun. In other words, interest rates are compensating for the higher prices, and folks aren’t as overstretched as they were in 2008, which contributed greatly to the recession. Hint: these rates won’t last forever.

 Third difference: the cause of low inventory

We are facing a similar month’s supply of inventory (the amount of months it takes to exhaust all inventory at the current sales price) as 2008. Tight inventory causes home prices to rise. When my buyer clients find a home they like, we are viewing it that day and making an offer.

The difference today is that we have far less new construction than the true bubble years. Yun notes, “new home construction back then was far higher than it is now. During the four years leading up to the peak of the bubble, homebuilders constructed an average of 1.9 million homes per year, says Yun, compared to 950,000 in the last four years.” Astounding right? Due to easy credit, there was a feeding frenzy during the bubble years- 8.4 million homes were sold compared to the 5.76 million in 2015.

All we are experiencing right now is a hike in prices which is certainly unhealthy but not going to cause an inevitable crash. Yun suggests a cure: more homebuilding. Stay tuned for my series on new home build projects around town- they could be something to consider!