4 Reasons Why We Are Not Heading Toward Another Housing Bubble

Dated: 07/27/2018

Views: 196

4 Reasons Why We Are Not Heading Toward Another Housing Bubble

4 Reasons Why We Are Not Heading Toward Another Housing Bubble | MyKCM


4 Reasons Why We Are Not Heading Toward Another Housing Bubble

With home prices continuing to appreciate above historic levels, some are concerned that we may be heading for another housing ‘boom & bust.’ It is important to remember, however, that today’s market is quite different than the bubble market of twelve years ago.

Here are four key metrics that will explain why:

  1. Home Prices

  2. Mortgage Standards

  3. Foreclosure Rates

  4. Housing Affordability

1. HOME PRICES

There is no doubt that home prices have reached 2006 levels in many markets across the country. However, after more than a decade, home prices should be much higher based on inflation alone.

Last week, CoreLogic reported that,

“The inflation-adjusted U.S. median sale price in June 2006 was $247,110 (or $199,899 in 2006 dollars), compared with $213,400 in March 2018.” (This is the latest data available.)

2. MORTGAGE STANDARDS

Many are concerned that lending institutions are again easing standards to a level that helped create the last housing bubble. However, there is proof that today’s standards are nowhere near as lenient as they were leading up to the crash.

The Urban Institute’s Housing Finance Policy Center issues a monthly index which,

“…measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”

Their July Housing Credit Availability Index revealed:

“Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.”

3. FORECLOSURE RATES

A major cause of the housing crash last decade was the number of foreclosures that hit the market. They not only increased the supply of homes for sale but were also being sold at 20-50% discounts. Foreclosures helped drive down all home values.

Today, foreclosure numbers are lower than they were before the housing boom. Here are the number of consumers with new foreclosures according to the Federal Reserve’s most recent Household Debt and Credit Report:

  • 2003: 203,320 (earliest reported numbers)

  • 2009: 566,180 (at the valley of the crash)

  • Today: 76,480

Foreclosures today are less than 40% of what they were in 2003.

4. HOUSING AFFORDABILITY

Contrary to many headlines, home affordability is better now than it was prior to the last housing boom. In the same article referenced in #1, CoreLogic revealed that in the vast majority of markets, “the inflation-adjusted, principal-and-interest mortgage payments that homebuyers have committed to this year remain much lower than their pre-crisis peaks.”

They went on to explain:

“The main reason the typical mortgage payment remains well below record levels in most of the country is that the average mortgage rate back in June 2006, when the U.S. typical mortgage payment peaked, was about 6.7 percent, compared with an average mortgage rate of about 4.4 percent in March 2018.”

The “price” of a home may be higher, but the “cost” is still below historic norms.

Bottom Line

After using these four key housing metrics to compare today to last decade, we can see that the current market is not anything like that bubble market.

Latest Blog Posts

How Is Remote Work Changing Homebuyer Needs

How Is Remote Work Changing Homebuyer Needs?With more companies figuring out how to efficiently and effectively enable their employees to work remotely (and for longer than most of us initially

Read More

Why Homeowners Have Great Selling Power Today

Why Homeowners Have Great Selling Power TodayWe’re sitting in an optimal moment in time for homeowners who are ready to sell their houses and make a move this year. Today’s homeowners are, on

Read More

Todays Buyers Are Serious About Purchasing A Home

Today’s Buyers Are Serious about Purchasing a HomeToday’s homebuyers are not just talking about their plans, they’re actively engaged in the buying process – and they’re serious about it.

Read More

Homeownership Rate Continues To Rise In 2020

Homeownership Rate Continues to Rise in 2020So far, it’s been quite a ride this year, and our nation has truly seen its fair share of hurdles. From COVID-19 to record unemployment and then the

Read More