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Are We in a Housing Bubble?

In March 2022, the average price of a single-family home in the Houston area topped $400,000 for the first time as the ongoing low inventory of properties on the market drove prices to new highs. The “warning signs” look all too familiar. Today’s escalating home prices have buyers and sellers feeling like the housing market is just “too good to be true,” and agents across the country are frequently being asked the same questions: “Are we in a housing bubble?”

Michele Harmon Team has uncovered three key factors that suggest we are NOT in a housing bubble.

What is a Housing Bubble?

In case you are new to the world of Real Estate, we would like to explain what a housing bubble is and why people are wondering if we are facing one today.

According to, “A real estate bubble, also referred to as a “housing bubble,” occurs when the price of housing rises at a rapid pace, driven by an increase in demand, limited supply and emotional buying. Once speculators recognize that housing prices are on the rise, they enter the market, further driving up demand. This phenomenon is called a bubble because at some point it will burst.”

Why are People Asking if We are in a Housing Bubble?

In 2006, the price of housing peaked. Prices began to soften by the end of the year, and by 2007, the bubble burst. Countless homeowners who purchased at this time regretted their home purchase because they suddenly owed far more on their property than they could expect to sell it for.

In a typical housing market, a homeowner purchases a property with an expectation of a slow increase in value. They understand that it can take years to build equity and are content with their home purchase. In contrast, some homeowners jump into the housing market the moment prices begin to rise at an accelerated rate. Their goal is to buy while the market is still heating up with hopes of quickly selling to a buyer willing to pay a higher price. According to the American Monetary Association, “real estate bubbles are driven by speculation, and speculation is grounded in human psychology. Investors swoop in and buy up property, which leads ordinary Americans with fewer financial resources to see an opportunity to make a quick profit. Throwing sense out the window, they begin to pay too much for an asset.”

On the surface, today’s market may look similar to what occurred in 2006. However, if you dig deeper, you will come to realize that today’s hot Real Estate market looks nothing like it did before.

These 3 Key Factors Suggest we are NOT in a Housing Bubble:

Housing Supply

In 2021, home values appreciated 15% on average. Although we are not expecting home value appreciation to match last year’s growth, consumers are still worried that home prices are too high, and that depreciation is likely to follow. 

However, one factor to consider is that today’s inventory shortage has been playing a major role in increasing home values. A balanced Real Estate market’s inventory sits around 6 months. Houston’s current market sits at 1.3 months,  which is just slightly above the lowest level of all time. This was not the case during the housing bubble in the mid-2000s. 

Throughout 2005-2007, the housing inventory level increased from five months to eleven months, and it accompanied a vast over-supply of homes that did not justify the price appreciation. 

Remember, the biggest driver of price appreciation is simply supply and demand, and this is exactly what’s happening in today’s market.

Housing Demand

Nobel Prize winning economist, Robert Shiller, published a book titled “Irrational Exuberance”, which narrates how the mid-2000s housing bubble was fueled by a country-wide case of simple fear of missing out rather than rational financial decisions. The mortgage industry followed suit and made it easier for people to obtain home loans they could not afford.

Today’s demand for housing, however, is truly genuine. As of March 2022, Houston, Texas faced a 1.3 months supply of inventory while the national months supply of inventory reached a record low of 1.0. In addition, lending standards have become more strict since before the housing crash. 


After the housing and economic crash of 2008, experts began to compile data in order to determine why everything happened the way it did.

 According to,”Nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of September, 2009. An additional 2.3 million mortgages were approaching negative equity, meaning they had less than five percent equity. Together negative equity and near negative equity mortgages account for nearly 28 percent of all residential properties with a mortgage nationwide.” 

In other words, many people found that the amount they owed on their home was significantly more than what their house was worth. This resulted in multiple foreclosures and short-sales, which depreciated home values nationwide. 

Today, we face a completely different equity picture. Homeowners have gained an average of $55,300 in equity in just the last 12 months. As prices continue to rise, equity will too. The rising equity homeowners are experiencing today will put the housing market in a much stronger place, limiting the risk of foreclosure, and stabilizing home values across the nation.

The Bottom Line

Michele Harmon Team wants to provide you with all of the education you need to make an informed Real Estate decision. If you are looking to buy or sell, we would love to help! We will walk you through the process and make it as stress-free on you as possible. Give us a call at 713-818-1330 to get started today!

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