Are We In a Housing Bubble About to Burst?
With the change of scenery around COVID-19, a lot of people are asking if we are in a housing bubble and if that bubble is about to burst.
Watch our latest video where Jordan addresses these concerns:
5 Reasons Why We Are Not in a Bubble About to Burst
- Mortgage standards today are nothing like they were prior to the housing crash of 2008. In other words, we are at a low point in what is called the Mortgage Credit Liability Index. It is more difficult today to get credit than it was back in 2005, 2006, and 2007.
- Prices are not soaring out of control. In the 6 years prior to the Great Recession, which occurred in 2008, prices were running up at a page of about 9% annually across the U.S. In the last 6 years leading up to 2020, home price appreciation has averaged about 5%, a much more conservative number.
- We don’t have a surplus of homes right now. In fact, back in 2006, there was about an 8.2 month supply of homes. Now keep in mind that was prior to the actual crash. TOday, we’re at about a 3 month supply of inventory of homes across the U.S., a much lower number than the over-8 month supply of homes we had back in 2005, 2006, and 2007.
- House prices are not as expensive today as they were prior to the last crash. In fact, in 2006, nationally people were spending an average of 25.4% of their income on their housing expense. Today, that number is around 15%. Now that sounds counter intuitive, and the reason is, even though prices have come up interest rates are historically low and that’s what is driving that lower housing payment. Of course that is a national number. Here in Orange County, a lot of people are paying close to half of their income towards housing each month, but as a national number, we are much more conservative each month when it comes to our housing expense.
- Today, people are equity-rich. In 2005-2007, if you can believe this, people cashed out over $820 million of their equity on cash-out refinances. In the last three years leading up to 2020, so 2017-2019, only about $230 million has been cashed out. So although we have higher prices, lower interest rates, and more equity, people only cashed out about 25% of the total equity that was cashed out between 2005-2007. So again, people aren’t treating their homes like cash machines and stealing from the till like they were back in 2005-2007. People are more conservative and aren’t making the same mistakes as they were prior to the 2008 recession.