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4 Reasons Why We Are Not Heading Toward Another Housing Bubble

4 Reasons Why We Are Not Heading Toward Another Housing Bubble

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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:
Home Prices
Mortgage Standards
Foreclosure Rates
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.

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Barbara Michaluk, Realtor

Phone 240-506-2434

Email: michaluk@verizon.net  /  Web: BarbaraSellsMDhomes.com

Authorized Leisure World Specialist / Senior Real Estate Specialist /
Internet Marketing Specialist / Certified E-Pro / Certified Staging Agent

Weichert Realtors / 3816 International Dr / Silver Spring, MD 20906

Authorized Leisure World Specialist     Barbara Michaluk Graduate Internet Marketing Specialist Barbara Michaluk Senior Real Estate Specialist   

Comment balloon 3 commentsBarbara Michaluk • July 27 2018 10:49AM

Comments

Good morning, Barbara Michaluk there is no bubble in the near future and certainly not now.... actually, the dust has settled... most prices need adjustments....

Posted by Barbara Todaro, "Franklin MA Homes" (RE/MAX Executive Realty ) 3 months ago

This question is asked all the time... This is a very concise and logical well stated explanation as a point of reference.

Thanks so much for sharing! and yes the only bubble in our future is in our champaigne glass!

Posted by Jason McIntosh, The McIntosh Group | Founder & Team Leader (RE/MAX Bay to Bay) 3 months ago

These are all excellent points, Barbara.  I agree that we are not going to have a crash like we had over 10 years ago.  Though, there may be some sort of correction.

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) 3 months ago

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