Is Minneapolis In A Real Estate Bubble?

Is Minneapolis in a real estate bubble?  I have asked myself this question many times since 2009. To be honest, I have no idea.  With current interest rates and low gas prices, it seems like people have so much extra spending money available; but overcommitting to new debts can be dangerous. What matters in the long run is if people can afford to pay their mortgage; as long as people are paying bills, then its not a problem.

Here is what I do know:

·       In 2008, the average interest rate for a mortgage was 6%.

·       In August of 2008, gas prices shot up to $4.00 per gallon.

·       In 2008, there was an 8.6 months’ supply of homes for sale in Minneapolis.

Fast forward to 2016, and here are how the numbers have changed:

·       The average interest rate right now for a mortgage is 3.8%.

·       I just drove down the street and gas was $2.25 per gallon.

·       There is a 2.3 months’ supply of homes for sale in Minneapolis.

What does this mean? People are feeling like they have so much more cash to spend and are more willing to make a risky purchase on a home.  My biggest concern is that people are trading their equity for debt right now. They are moving up, buying bigger houses, and eventually they won’t be able to buy any more homes because prices will be too high (at least in Minneapolis).

When that happens, we will start to see a slow down in prices and the market may be unpredictable. I recommend living under budget just in case. There will be opportunity when the market shifts, just as there is opportunity now. Just make sure you purchase a good home on a good piece of land and hold for the long term; it’s a much smarter gamble than jumping into a too-high mortgage that you may not be able to comfortably afford if the market changes.

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