Having worked in both markets, I see certain similarities that can caution where we're going in the next few years if taken out of context and without consideration for the differences between the two markets.
Similarities between the current market and the pre-Great Recession market
"Unsustainable" Price Increases
In both markets we've seen price increases that seemed to grow 10% or more every year. Come January, prices seem to jump up and by the time the spring market is in full swing, there's been $100,000 increases. When this happens for three or more years consecutively it begins to feel unsustainable, and then it continues and prices that seemed high a year or two prior, now seem like relative bargains.
Multiple Offers with Few Contingencies
The early 2000's saw the initiation of offer dates, when all buyers would submit their offers at once to be reviewed and assessed en masse. Back then to waive an inspection contingency, a buyer would perform an inspection prior to submitting their offer. Now, sellers are more likely to provide a general inspection report in addition to the more standard pest inspection report.
Overpriced Homes Don't Sell
This is true in any market. If you overprice your home, it won't sell -- at least not in a desirable time frame. Here in the Bay Area homes that sit on the market longer than 19 days have surpassed their offer date and will have to make an adjustment somehow. If a property is overpriced, the price will need to be lowered to attract buyer attention.
Differences between the current market and the pre-Great Recession market
Cash & Financing
By now we all know that a huge factor in the Great Recession was the mortgage lending industry. Buyers could get loans for up to 105% of the purchase price using stated, no doc loans. Those were loans where the buyer simply wrote down whatever income and assets they needed to get the loan, with no verification in the form of paperwork review. Those loans are gone now, thankfully, but I have seen some easing on lending restrictions lately, though nothing as extreme as stated, no doc products. Conversely, in the current market there is a lot of cash out there -- be it from all cash buyers of $1m+ properties, or downpayments in excess of 30%. Buyers are smarter now, for the most part. They have more skin in the game, which is important for when the market does eventually correct because they'll be less likely to end up underwater or in foreclosure since their mortgages are lower.
Over Bids
In the pre-Great Recession market if there were 11 bids on a house it'd be a bit uncomfortable to tell my buyers to pay $100k over the asking price. These days, overbids pretty much start at $100k over asking price. We used to consider dollar amounts more when bidding, now we look more toward the percentage over asking. Even with 3 offers, a home can sell for $250k over the asking price in today's market.
Asking Prices
I've written about this topic in more detail here, but in short to describe the difference: agents now deliberately under price their listings by 20% on average from where they think the property will sell. Back in the early 2000's homes were still priced pretty much at market value. That's where you get the immense discrepancy of the over-bids between then and now.
Inventory
Any buyer or Realtor will readily lament the lack of inventory in the market today. Back in the day, I could take clients out on a buying trip and have anywhere from 7-15 houses to show them. Today, I'm lucky if there are 3-4 that check enough of their boxes to be worth them seeing.
Property Condition & Buyer Mentality
With properties selling at a premium, buyers are almost requiring that for them toe pay top dollar the house better be in damn near perfect condition. No one wants to pay 30-40% over asking price only to buy a house they have to remodel or fix the roof or foundation. Sure there are fixers in this market, and yes, they do still get bids over their asking prices, but it's all relative and those fixers will not get the "unsustainable price" offer.
Agent Involvement
Despite the internet actually being useful to buyers now, versus pre-Great Recession when Zillow was just trying to get off the ground, Realtors are working harder than ever. Agents working with sellers work as the general contractor pulling together reputable vendors, negotiating their bids, and overseeing their work on behalf of the seller to create the fantasy home all buyers want to see these days. Any buyer will tell you they wrote 3, 4, or 15 offers before getting one accepted. Their agent is out there networking in the broker community, learning the behind-the-scenes information about comparable properties, staying up on the market, crafting offers, helping buyers craft love letters to sellers, and quarterbacking the whole deal between their client, the mortgage broker, escrow officer, inspectors, and contractors, all the while maintaining calm waters so no one in the deal gets too stressed or panicked -- not just their client, but the other agent, and everyone else involved.
These are not easy markets in which to be involved. Still, if it's your time to buy or sell, then it's the time to enlist a strong team and make it happen.
For better or for worse, this market won't last forever. Real estate is cyclical, it will go down, and it will come back up again. Each generation has its stories about how they paid $XXX for their home and never thought it'd cross a certain number, a number which has been exceeded no matter if you bought 30 years ago, or 3 years ago.
The Bay Area remains one of the strongest real estate markets in the country, a fact that is unlikely to change anytime soon as long as we continue to enjoy our great weather, cultural diversity, amazing food, wine, and every outdoor activity you could want within a 3 hour drive.