It’s Not A Real Estate Bubble

It’s not a real estate bubble, it’s simply a lack of supply, and here is why it is different.

The History

Back in the early 2000’s, mortgage options were plentiful. Too plentiful as it turned out. Banks were offering easy access to money prior to the mortgage crisis of 2007.

The result was three-fold. Risky individuals with low credit scores were qualifying as sub-prime borrowers by way of little or no income and debt qualification.

Banks were offering risky products with short term benefits but long-term risk such as option-arm loans and interest-only loans. And lastly, there was fraud in the industry from some buyers and mortgage brokers by providing inaccurate information on loan applications.


Unlike in 2007 during the subprime mortgage crisis, borrowers are less risky in today’s market. Banks and mortgage brokers are working within a much stricter lending environment and buyers today are finding primarily 15- or 30-year fixed rate mortgage options. Buyers with lower credit scores are less likely to be able to enter the home purchase process. Adjustable-rate mortgages still exist; however, they are used few and far between and predominantly in situations where a homeowner knows they will only be the current home for a very short period.

Why This Market Is Different

  • Home Inventories Are At Record Lows. The first 3 months of 2020 showed signs that sellers were ready to re-enter the real estate market­—until Covid-19 hit. After a pause in market activity as people tried to figure out what Covid-19 was going to mean to them, buyers of real estate began to accelerate their spring and summer purchase plans and the buying frenzy began. From April of 2020 and continuing to date, we (and the national market) have experienced a rush of buyers never seen before.
  • Buyer Demand Is At A Record High. The cost of borrowing money dropped in 2020 with mortgage rates just over 3%, coming down from a high of just under 4% in 2019. Rates then fell even further in 2021 to an average rate for a 30-year fixed mortgage under 3%. Add Covid-19 stimulus funds, buyers’ new needs to not only work from home, but also in many cases school their children from home, lead to the realization that the house they currently lived in is suddenly too small. And these buyers are not like the ones in 2007. For the most part, they have solid credit scores. They have stable employment. With record low mortgage interest rates, it was no longer a question of how much they can afford to spend, but what are they comfortable spending now that they didn’t have the expense of commuting. The world changed this past year and working from home is now a reality. This also opened more options for buyers and their home search areas. The suburbs and rural communities (as long as there is strong broadband service available) are seeing more growth and popularity.

If Mortgage Money Is Cheap, Why Can’t We Keep Up With New Homes To Fill The Void?

The National Association of REALTORS® (NAR) tracks the national trends for annual housing starts. The last time that new construction building was above the annual average of 1.5 million homes under construction was 2006. Just before the subprime mortgage crisis hit. The years leading back up to 2020 in this graphic shows that there was a housing supply issue in the making long before Covid-19 entered the picture. Add to the mix now supply and cost issues associated with new home construction and even with the record low mortgage interest rates, home builders are struggling to keep up the pace. A recent article in the Business Record reports that the 468 building permits taken out in April was down 9% from March when 513 permits were issues. At the same time the average price of a new built home is rising each month, a 3.6% increase from March to April alone.

Why This Market Is Not A Bubble

If we were in a bubble, we would have excess home inventory (we had 4 times as many homes for sale nationally in 2007), we would have high mortgage interest rates, the number of buyers being able to qualify would be low and home values would be plummeting.

The solution is to add more new homes to the market. Government actions to remove the tariff fees (or greatly reduce them) for the United States to be able to cut the costs of lumber and building supplies from Canada and other countries. Get people back to work and off unemployment so that the effects of inflation do not become another factor and enact legislation such as the Neighborhood Homes Investment Act, which would offer tax credits to attract private investment for building and rehabilitating owner-occupied homes and enacting the Housing Supply and Affordability Act, both at the Federal level.

Les Sulgrove, Vice President of VIA Group REALTORS, has been selling real estate in Des Moines since 1990 and tracking the local real estate market trends since 2009. Follow Les on Twitter @lessulgrove, on Facebook at, or subscribe to his YouTube channel, for the latest information about the central Iowa real estate market and a weekly 15-minute market update. View this data along with more real estate market statistics at