What's Up With This Real Estate Market?

Written by: Michael Carbone, CFP®

Home prices have come up a lot since March 2020 – according to Zillow, single families and condos in MA have grown by ~15% and ~7.5%, compounded annually. This is compared to ~4.4% and ~5.6% in the previous five-years.

That Smells Bubbly – Should I be Worried?

First, what’s an asset bubble? An asset bubble is a significant (and unjust) increase in the price of a specific asset, usually caused by an increase in investor speculation. When investors speculate, they tend to buy – not to use – but to hold for a while, hoping they’ll be able to sell to someone else later at a higher price.

So, my first question is, does today’s market seem to have a lot of participants who are speculating? It doesn’t seem like it. Why? U.S. households aren’t over extended when compared to historical periods of speculation. For example:

  • Household debt was ~77% of U.S. Gross Domestic Product as of the 2nd quarter of last year (source: St. Louis Fed.) This number was over 100% prior to the 2007 financial crisis.
  • The new loans being originated are generally less risky when compared to the years leading up to the last crisis – meaning there are materially less mortgages being originated for those with poor credit.
  • Homeowners are less extended than at the last market top. Due to lower interest rates, mortgage payments today use-up a smaller percentage of American’s average take-home pay.

Second, is the real estate market expensive? To answer that, we try to understand the price of the average house in relation to average incomes in the same region. By this measure, houses are priced at the high end of historical valuations. (1)

Why Have Prices Risen?

I believe home prices have risen sharply for much of the same reasons that many other asset classes have performed so well recently – a combination of low interest rates and high balances in household savings accounts looking for potentially higher returns.

Also, when prices rise it means demand is rising faster than supply. It’s been widely reported that many people are upsizing their homes, as they are working remotely more often. Also, home inventories (aka supply) are at relatively average levels (Source: St. Louis Fed). So, it’s no surprise that prices are rising due to the supply demand imbalance.

What Does This Mean for The Personal Investor?

First, those looking to own to occupy are different from speculators. Assuming they can initially afford the property without too much strain on their cash flow, many owner/occupiers often grow into their home over the years – especially as their wages rise over time (most mortgage payments are fixed).

Many owner/occupiers have benefitted over the years from paying down their mortgage with each payment to principal while renters have no build-up of equity. So, although speculators must be concerned with timing issues, the market cycle starting point for long-term owner/occupiers may become less significant with time.

Keep in mind, waiting for prices to fall is not a strategy, it’s speculation – even for long-term owner occupiers. Why? If prices continue to rise, you may watch the market move too far away from your ability to buy.

Cycles can last a long-time and often go further than most people expect – to the upside and to the downside. Also, keep in mind, valuation often tells us very little about the timing of market cycles.

In summary, for those making decisions that involve a primary residence, it’s never a good time to buy if you may be unable to continue to “carry” the cost of the house over the long run and vice versa.

If you don’t feel comfortable, or simply aren’t interested in doing this on your own, please reach out to me for discussion. I’m happy to answer any questions you may have and/or show you how we’re helping investors. I can be reached by email or phone at Michael.carbone@raymondjames.com ; 978.455.7799

Thank you for reading!


About This Letter

This is a financial blog tailored to non-institutional investors. The letter aims to provide thoughtful content that may be useful for those making complex financial decisions.

About The Author

Michael Carbone is a Financial Advisor in the Greater Boston Area. He is a CERTIFIED FINANCIAL PLANNER™ and holds bachelors and master’s degrees in business and finance.


  1. Organization for Economic Co-operation and Development OECD; Long Term Trends.

Other Sources:





Home Price to Income Ratio (US & UK) - 75 Year Chart | Longtermtrends

Important Investment Disclosures

Past performance is not indicative of future results and there is no assurance that any investment strategy will be successful.

Any opinions are those of Michael Carbone and are not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change. This information is not intended as a solicitation or recommendation of any kind. Investments mentioned may not be suitable for all investors. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Diversification and asset allocation do not ensure a profit or protect against a loss.