KNOXVILLE, Tenn. (WATE) — The rising cost of buying a house has many people feeling we’re in all too familiar territory. Some are fearful we’re in a bubble, similar to the one in 2008, and that it could burst.
Hancel Sale, governmental affairs and policy director for the Knoxville Area Association of Realtors, maintained Thursday what we’re experiencing is not a housing bubble.
The term applies when home prices outpace a property’s underlying, fundamental value, Sale explained. But, he noted, it’s equally as important to look at why costs are going up.
In the years leading up to 2008, home values soared. Sale blamed that crisis on widespread speculation, investor activity, and loose financing standards.
“We were pulling people into the market that probably shouldn’t have been there in the first place,” he said.
Prices have actually grown at a greater rate over the last year than in the years before the crash, but he described the housing market today as very different from 2008.
He doesn’t see a need for homeowners to be concerned, particularly those in the Knoxville area. Given its historically low supply of housing the city is used to demand.
“Rising home prices are justified in many ways when you look at why this happened,” Sale said.
He pointed out our current need for housing is greater than before the Great Recession. Sale said an already strained housing supply is paired with the influx of new residents to the city throughout the pandemic, he believes demand is likely to stick around.
He also provided some context. He explained lending standards are higher today, meaning there are fewer foreclosures. That change has resulted in more qualified buyers with higher credit scores in the market who are taking out loans more within their means.
The current standards add confidence buyers can manage the rising prices of buying a home. He also mentioned new groups of buyers are entering the market, including millennials. It’s why he predicted a sellers’ market will continue and property values will continue to grow, assuming there is no significant boom in new construction.
The biggest risk we face now, he said, is the possibility of rising interest rates. If they went up, significantly, Sale believes price growth would slow, or plateau. It would mean buyers would have less spending power when trying to buy a house in a market where bidding wars are common.
However, current rates represent all-time lows, and even if rates climbed two percentage points, the result would still be relatively low, historically.
“That’s much different than 2008 where we had a financial crisis and collapse in our market where people were under water,” Sale added.