I’ve been in real estate for 27 years and I’ve never seen anything like this market. Almost everywhere you look, there are double-digit price increases. Some cities, like St. George, Utah, have seen 40% appreciation in the past 12 months alone. 

These days, instead of getting asked about how to win bidding wars, my clients and friends constantly ask me if we’re in a real estate bubble that’s ready to pop. That’s why I decided to write this article explaining what a real estate bubble is, if we’re in one now, and most importantly, if or when I think the bubble might pop. 

I’ll wrap up by providing some key resources I used to survive and thrive through the recession of 2008. 

Free Template: Housing Market Infographic

What Is a Housing Bubble, Anyway?

A housing bubble, or speculative bubble, is defined by a steep rise in housing prices that is not supported by common or logical economic factors or fundamentals. The first recorded speculative bubble occurred in the 17th century in Holland and is now known as Tulip Mania, a period during which prices for some newly introduced and fashionable tulip bulbs climbed precipitously and then collapsed dramatically. More on this later.

2022 Market Factors Indicative of a Coming Housing Bubble Pop

Ask a real estate CEO or economist and they’ll tell you that there are many factors contributing to the current and massive housing appreciation throughout the U.S. Factors such as the sudden growth in remote work, changing migration patterns, and supply shortages are contributing to an already under-supplied housing inventory.

Top 100 Hottest Real Estate Markets by Appreciation from sparkrental.com
(Source: www.sparkrental.com)

Increased demand and low inventory is causing regular homeowners, like you and me, to have to bid 10% to 20% over asking price to secure a deal on a home. These basic economic forces have caused home prices to rise in some areas by more than 40% in just the past year!

While these factors are indeed important, there are other factors behind the scenes that may be causing even bigger problems for the American housing market. 

Institutional Investors Are Changing the Market

Real estate speculation is at an all-time high. However, unlike in 2008, this time it’s not from unqualified buyers who are buying property with subprime mortgages. Instead, massive institutional investors are buying single-family homes by the tens of thousands. 

Looking to cash in on the high rents and a housing shortage that likely will take 20 to 30 years to resolve itself, these firms have raised BILLIONS (yes, with a B!) of dollars and are often using those funds to pay market price or above to buy homes throughout the United States.

In 2022, it is estimated that 2% (over 300,000) of all single-family homes in the U.S. are already owned by institutional investors.

It gets worse. With limited existing home inventory, some institutional investors are hiring homebuilders like Lannar to build entire neighborhoods to turn into investment rental properties.

Investor Market Share Analysis from Redfin
(Source: Redfin)

This practice will put further strain on the already short-handed new home industry and prevent more new homes from being built for individual homeowners. 

The primary concern with institutional investors is that not only are they buying housing that is further diluting housing inventory, causing inflation, and increasing rents, but when we do have an economic downturn that impacts housing values and rental income (and we inevitably will), will those investors hold the homes and developments or dump them like a truckload of bad fish?

If that happens, we could see a few hundred thousand homes hit the market in a short period of time and the housing market will have officially burst, possibly to a greater degree than we experienced in The Great Recession that began in 2007. However, I suspect that those running these institutions are smart and have planned for a future market correction.

So, Are We in for a Housing Bubble in 2022? When Will It Pop?

Housing Bubble and When Will it Pop

With low inventory and pent-up buyer demand, we are not likely in a catastrophic housing bubble in 2022… yet. However, it is still possible for values to slow and the market to correct without causing a total housing market collapse. 

The main factor that could change the trajectory of housing appreciation is interest rates. With inflation still on the rise, the government has announced it will raise interest rates throughout 2022. This is highly likely to have an impact on rapid housing appreciation but not enough to make home values fall.

As we know from history, war can also slow the economy. With Russia’s invasion into Ukraine, even the threat of a U.S. war with Russia could negatively impact the rising housing market.

Overall, I agree with what Gary Keller, founder of Keller Williams, recently announced at his annual conference, “We’re not in a bubble, but we may be blowing one!”

5 Ways Realtors Can Prepare for a Potential Housing Bubble Pop

House Foreclosure

Just because I don’t think we’re in a bubble ready to burst doesn’t mean you shouldn’t be prepared for one. World events like the war in Ukraine, rising gas prices, and inflation might put a damper on the confidence and qualifications of buyers. 

In 2007, the market had more buyers than listings. Builders were selling homes by lottery, and real estate agents were living large—and so was I. Like many others, I owned multiple properties and I was building custom homes on the side for big profits.

As agents, we knew that 100%, no-document lending was wrong, but we didn’t know the consequences. One year later, in September 2008 when Lehman Brothers—the nation’s fourth-largest investment bank—filed for Chapter 11 bankruptcy, it signaled the start of the largest real estate crash of our lifetime.

It was like someone turned off Niagara Falls. One minute you are selling 10 homes a month, the next you have 20 listings and no buyers. The clients you just sold homes to start calling and saying that they could no longer afford their payments and had to sell—ASAP. Short sales and foreclosures quickly became the norm.

I was fortunate. Unlike the million-plus real estate licensees that left the business, I pivoted to working with distressed homeowners and became a Real Estate Owned (REO) agent. An REO agent represents banks and loan servicing companies to sell the homes that they foreclosed upon. 

If you want to get ahead of any possible market shift, you can learn more about how I not only survived the recession, but how I thrived in a shifting real estate market in this course offered in The Close Pro.

Visit The Close Pro

In the meantime, here are a few more resources to help you prepare for a shifting market: 

1. Diversify Your Lead Generation Strategies

As a rule, generating leads is going to be harder. That means you might have to change how you get leads.

Related Article
33 Underrated Real Estate Lead Generation Ideas for 2023

2. Follow Industry Thought Leaders

Of course, watching and learning from industry thought leaders or top producers in your city can be helpful too. Chances are they have weathered recessions before, so look to see what they’re doing and how they change it up in response to the market.

Related Article
This Year Will Make or Break Most Agents: Here’s How 10 Thought Leaders Are Preparing

3. Try Working With Investors

Contrary to popular belief, investors generally increase their buying activity when prices soften. If you want to get ahead of the game, learning how to work with investors can help.

Related Article
9 Skills Agents Need to Work With Investors & Close 50-100 Deals a Year

4. Conquer Your Fear of Cold Calling

The days of business just falling in your lap might be coming to an end. The agents who thrive will be the agents who are fearless and relentless cold callers. Learn some tricks to get ready.

Related Article
7 Real Estate Cold Calling Scripts + Tips to Conquer Your Fears

5. Keep Yourself Motivated

If you’re down in the dumps all the time, it’s going to be very hard to attract much new business. Learn how top agents bounce back, and copy their strategies so you stay fresh and confident no matter what happens in the market.

Related Article
Real Estate Motivation: How Top Agents Bounce Back (Fast!)

Over to You

Do you think your local market is approaching bubble territory and is ready to pop? Let us know your thoughts in the comments.