5 Simple Graphs Proving This Is NOT Like the Last Time
With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf,Director of Economic Researchat the real estate consulting firmMeyers Research, addressed this point in arecent interview:
“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”
There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.
1. Mortgage standards are nothing like they were back then.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. TheMortgage Bankers’ Associationreleases aMortgage Credit Availability Indexwhich is“a summary measure which indicates the availability of mortgage credit at a point in time.”The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
2. Prices are not soaring out of control.
Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.
3. We don’t have a surplus of homes on the market. We have a shortage.
The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
4. Houses became too expensive to buy.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
5. People are equity rich, not tapped out.
In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.
Author:KatiAnn Craciunescu Phone: 480-688-5218 Dated: March 17th 2020 Views: 908 About KatiAnn: ...
View our latest blog posts in your RSS reader. Click here to access.
My Home Group was established in the Valley of the Sun back in 2004. Its owners are Designated Broker, Jereme Kleven, and the Operations Manager, Mark Hutchins. Together they have over 25 years of experience in the Residential Real Estate Market. My Home Group and its associate Real Estate Professionals collectively have over 100 years of experience.
My Home Group focuses on quality of service and excellent performance with each and every client. This making My Home Group a Rapidly Growing Real Estate Company in Arizona. My Home Group is on the cutting edge of technology. Providing effective tools for each agent's success as well as streamlining each transaction allowing agent's to focus more on their clients and their business. The end result... Amazing results and outstanding customer service every time!
Today, it seems personal touch in Real Estate has been lost. My Home Group takes pride in providing the necessary technology that is needed to succeed without losing that personal touch. This is what makes My Home Group and its agent professionals known for their excellence.