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Posts Tagged ‘housing bubble’

Is the Inventory Increase a Bullish or Bearish Sign for Real Estate?

Is the Increase in Inventory a Bullish or Bearish Sign for Real Estate? | Simplifying The Market In a recent article, National Housing Inventory Crisis Reaches Inflection Point, realtor.com reported that:
  1. New listings jumped 8% year-over-year nationally, the largest increase since 2013
  2. Total listings in the 45 largest markets are now up 6% on average over last year
  This increase in housing inventory has sparked two different reactions. Some are saying this is the first sign of a potential collapse.  Meanwhile, others are saying it is a welcomed reprieve from the lack of inventory that has stalled the market recently. As Zelman & Associates reported in a recent ‘Z Report’:
“With the rate of home price appreciation starting to decelerate alongside the uptick in inventory, we expect significant debate whether this is a bullish or bearish sign.”

Is this a sign the market might crash?

There are those who look at the increase in inventory as a sign that we are returning to the market we saw last decade. However, a closer look shows that we are nowhere near the levels of inventory we reached before the crash in 2008. A normal market would have about 6-months inventory, but the latest Existing Home Sales Report issued by the National Association of Realtors revealed that:
“Unsold inventory is at a 4.3-month supply at the current sales pace up from 4.1 months a year ago.”
A decade ago, prices began to rapidly depreciate in June 2007. At that time, we had a 9.1-month supply (more than double what it is today) and inventory kept rising until it hit a peak of 11.1 months in April of 2008. With the current levels of buyer demand, any such increase in months supply is highly unlikely. As Danielle Hale, realtor.com’s Chief Economist explains:
 “After years of record-breaking inventory declines, September’s almost flat inventory signals a big change in the real estate market. Would-be buyers who had been waiting for a bigger selection of homes for sale may finally see more listings materialize. But don’t expect the level to jump dramatically. Plenty of buyers in the market are scooping up homes as soon as they’re listed, which will keep national increases relatively small for the time being.”

What will be the result of the increase in inventory?

The increase in inventory will allow many families who had been unable to find a home to finally become homeowners. Again, we quote from the ‘Z Report’:
“In our view, the short-term narrative will probably be confusing, but more sustainable growth and affordability will likely be the end result.”

Bottom Line

If you are either a first-time or second-time buyer who has given up, let’s get together. We can discuss the inventory available in any town or towns in our market. You may be surprised to find just how many homes are in your price range.

Housing Bubble? 4 Reasons Why We Are Not Heading Toward Another One

4 Reasons Why We Are Not Heading Toward Another Housing Bubble | Simplifying The Market

Another Housing Bubble?

With home prices continuing to appreciate above historic levels, some are concerned that we may be heading for another housing bubble. It is important to remember, however, that today’s market is quite different than the housing 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 metrics to compare today to last decade, we can see that the current market is not anything like that housing bubble market.