People are beginning to pause in their real estate activities due to thinking that the housing market is headed for another ‘boom and bust’. However, today’s market is a lot different than the bubble market that happened 12 years ago.
Here I will outline four of the key metrics that will explain to you why we are not headed that way again.
- Across the U.S. there is no doubt that in some markets home prices have reached and, in some places, surpassed 2006 levels. But historically, home prices should be a lot higher if you based them on inflation alone.
- With the news lately that the Trump administration wants to lessen the standards for mortgages, there is some concern that lending institutions are going to loosen their grip back to the old standards that put them in trouble in the first place. But there is proof that today’s standards are better than they were. The Urban Institute issues a monthly index that measures the percentage of home purchase loans that are likely to default. This report shows that lenders are unwilling to tolerate defaults and are imposing tighter lending standards which make it more difficult to get a loan. Their July report stated that even if the current default risk doubled across all channels it would still be the well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the mortgage market as a whole.
- Another major cause of the housing crash was the large number of foreclosures that hit the market. This increased the supply of homes across the market and reduced prices since they were sold at 20-50 percent discounts. This drove down the price on all homes for sale. Today’s foreclosure numbers are lower than before the housing boom. Here are some numbers that prove the foreclosure rates have dropped.
- 2003: 203,320 (earliest numbers)
- 2009: 566,180 (in the midst of the crash)
- Today: 76,480
- Foreclosures today are less than 40 percent of what they were in 2003
- Contrary to popular belief and headlines, home affordability is better now that it was before the last housing boom. CoreLogic’s latest blog post on July 18th stated that in most of the U.S. markets, “the inflation-adjusted, principal-and-interest mortgage payments that homebuyers have committed to this year remain much lower than their pre-crisis peaks.” The main reason is because mortgage rates are still at historical lows. Prices may have risen but mortgage rates have not kept pace with them.
When we compare these four metrics to the last decade it proves that the current market is not anything like the recent past bubble market.
And remember if you, a friend or family member need assistance with selling or buying a home I can help. Referrals and people needing relocation assistance are welcome! Search Single Family homes in Greenville. Search Condos and Townhomes in Greenville.