Market bubble or no Market Bubble?

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Real Estate

I'm seeing a lot of articles written that we are in a bubble so I thought I'd give you my my thoughts on the matter.

While it's certainly possible that we are in another bubble.  I think there are several circumstances that point otherwise, particularly here in DFW.  

First, inventory is extremely low and has been declining steadily for the last 7 or 8 years as people realize that if they just want to move laterally in size, it's going to cost them a lot of money so best to just fix up what they have.  

Second, rates are rising and are still well below the historic averages of 7 percent and so people want in while rates are still making payments affordable.  

Third, there is HUGE demand here in our area, we have averaged 1.4M people every decade for the last 30 years and with the exodus from the blue states over all the lockdowns and restrictions, that has just gone through the roof.  We could be at 2M per decade or higher at the current pace.  

Fourth, builders are hesitant to build too many expensive homes as spec homes as they are concerned about a crash, especially in the stock market where people get their down-payments, and they don't want to be holding inventory that was built with very expensive materials that they might not be able to sell.  So they are building with contracts but they have outs for buyers if material costs rise more than 10% where the buyer can back out and get their earnest money refunded and that gives them spec homes to sell that have been very personalized and are usually harder to sell than a generic spec home.  Fortunately for them buyers are snapping up everything they have, but if that stops they don't want to go bankrupt holding unsold inventory that cost them a ton to build.  So they are building slower than before.  That holds inventory down as well.  

Fifth, inflation is much higher than what the Biden Regime is reporting as we can all see with our wallets and Real Estate is one of the best places to hedge against inflation.  So much of the price increases are not related to a bubble, but to inflationary pressures, which are very high.  The dollar has just become worth less and home prices are reflecting that so in that sense, there is no bubble.  

Sixth, rents have risen tremendously.  My own home just a year and a half ago, would have rented around $3,200/mo.  Now it's at least $5k, if not $6k/mo.  So renters are looking at the high costs of rents and realizing even at inflated values for new homes that it's better to buy in this market rather than rent with the possibility of 10% annual rent increases.

So are we in a market bubble?  Well, a bubble is typically determined by speculation and large debt to fund that speculation, both of which are not in abundance, at least not in relation to what happened in '08 or in other speculative crashes, such as '87 or the crash.  I think what we are seeing is people desperate for a home in a place of the country that hasn't gone insane with tyranical restrictions.  Add in incredibly high inflation and it's a recipe for fast rising home prices.  So I do not see a crash in the Real Estate market, at least not out here in DFW. 

In SoCal and other liberal locations, yes, I see a real estate crash coming because they are losing people, just between NY and California alone, they lost almost 800,000 people in the last year.  But here in DFW, we may experience some dips but I'm just not seeing a crash based on the data.