Now, my opinion, we are not in a bubble and here are 6 reasons we know we aren’t:

1. Price growth is the product of pure economics–less supply, more demand= higher prices–This was compounded by the pandemic. More people are working from home than ever before. This brings to light the issues with our homes and flooded the market with buyers. First time buyers, second time buyers, investors, first time investors (kept their existing homes) all entered the market.
2. Sustainable lending practices–One of the main contributing factors to the crash in 2008 was extremely irresponsible lending practices. Very low credit scores, stated income, alternative forms of “credit”, subprime, interest only loans, 110% loans, etc were the norm. Now, requirements are as strict as they have ever been. It is actually not easy to get a loan. These practices stabilize the market and, should something happen, make a crash much less likely.
3. Low Interest Rates–This is a HUGE driver for price increases. The “cheaper” the money is, the more we can afford to borrow. If we were at 8% rates, as a population, we just couldn’t afford the prices. At 3.5% or less, we can afford (monthly payment wise) a higher loan amount. In other words, money is cheap and we can afford more of it.
4. Substantial equity–The amount of equity our population is sitting on is more than it has been in decades. We have less debt as a percentage of disposable income than we did in the early 80s. This equity protects us from the foreclosure positions many were in in 2008. If the market drops off, we can cover the loss. That only helps consumer confidence and keeps banks willing to lend.
5. Slowing of new construction supply–home construction was facing a dilemma before the pandemic–labor was more and more scarce and more and more expensive. Covid-19 shut down borders that exacerbated the issue by making materials more scarce and skyrocketed prices of materials. As all this happened, builders had to protect themselves from exposure to a volatile market. Every builder reacted differently. Some went to pre-sales only. Some went to market homes only–not setting prices until the home was built. Some went to escalation clauses in their pre-sale contracts. Bottom line, all production slowed.
6. Historically, new construction was the expansion valve to our market. If demand went up, builders built more (private, existing home sales stay pretty even). If the market slowed, builders built less. In this case, the market zoomed while builders HAD to slow down. The gap got crazy wide and it is unlikely builders will “catch up” anytime soon.

At least in our area, our existing market was actually behind. Right now we are at a 102 cost of living index. 100 is the national average. We (Nashville MSA which includes Rutherford County) only crossed the 100 mark less than 2 years ago. Note that the 102 is a composite and our housing piece of that is 113.3 right now (13.3% higher than national average). The point is, we have been a bargain for a LONG time and were due to go up quite a bit.