After 2007, the fear of another housing bubble and crash is palpable. Everyone is terrified that if they buy a house, there will be robo-signed foreclosures, massive losses in home values, and a huge economic slowdown.
We don’t believe that we’re in another housing bubble and here are the reasons why:
- The price of houses are higher than they were in 2008, after the crash, but they aren’t even at the prices they should be if you account for inflation alone. Even though home prices are up, if you started with 2006 prices and only adjust for inflation, they are lagging behind by about 15%.
- While the banks are slowly beginning to unclench their mortgage fists, they aren’t anywhere near as lenient as they were in 2006. Twelve years ago, you didn’t really even need an income to be able to get a mortgage. Today, it’s a lot tougher. You have to actually qualify for the loan. Things are definitely not as lax and dangerous as they were in 2006.
- Homes are more affordable, as a percentage of income, than they were in the last housing boom. Since interest rates are low and seem to be staying that way, it’s likely that we’ll see mortgage prices stay low enough to be affordable. This doesn’t mean that every market is affordable for everyone, but overall, the housing market in the US is more affordable, as a percentage of income, than during the last housing bubble.
- There are many, many less foreclosures each year than there were, even years before the bubble burst. When the last housing boom was going on, there were about 60% more foreclosures per year than there are now. Those houses were flooding the market creating too much supply and were being sold at huge discounts. All of this movement made the market weak and caused supply to outstrip demand. That’s not what’s happening now. Now we have a modest foreclosure rate and the supply is a little behind demand, which is where we want it to be for long-term stability.
The fear of another housing crash is legitimate, but there are no indications that it will happen again. Supply is low, but steady. Interest is staying low enough to keep homes affordable. And mortgage companies aren’t giving and taking away like they did in the early 2000’s. Be cautious, but for now, all sign point to a healthy housing market for the foreseeable future.