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:
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,
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,
Their July Housing Credit Availability Index revealed:
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:
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 “price” of a home may be higher, but the “cost” is still below historic norms.
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.