"MTV Cribs" was back for its 13th season. The season premiere of the show was just as the housing bubble was hitting its peak. The Case-Shiller U.S. National Home Price Index increased between 2000 and 2006 The party was about to come to a close. The U.S. housing market slowed after hitting that peak reading. It was in a full blown housing bust by 2008. Home prices wouldn't top their July 2006 reading again until January 2017.
There are three things that need to be considered in order to define a housing bubble. Demand would rush into the housing market. Home prices will travel well above incomes if they go up. Home prices fall. The 13th season of "MTV Cribs" aired in 2006 and the housing market had already hit two of the three criteria.
Since January 2020, U.S. home prices have gone up a staggering 41.6%. Economists are perplexed by the swift move-up in home prices, which is far above a typical year since 1987. The Pandemic Housing Boom is not underpinned by the unsound mortgage vehicles that caused the last bubble, but it does meet some of the criteria for being a housing bubble.
It could be a housing bubble. It seems like it looks like a housing bubble. A tad like a duck. A senior research economist at the Dallas Fed told Fortune that it may be a duck. He won't call this a housing bubble, but he says we should pay attention to the risks of housing.
Let's take a closer look at how it does and doesn't look like a housing bubble. Overvaluation is the first thing we're looking at.
Around 400 markets are calculated by Moody's Analytics every quarter. The firm wants to know if local income levels can support home prices. It's not good when a housing market is over valued. The crash happened in the lead up to that. The US housing market was overvalued in the first quarter of 2006
The U.S. housing market went through a period of decline after the 2008 crash. Things were getting back to normal by around the beginning of the new year. Home prices were affordable even as the market improved. The median U.S. regional housing market was over valued in the first quarter of 2020.
Housing economists are on high alert. Private sector wages have increased 4.8% over the past year. It's a recipe for housing overvaluation to return if income growth and home price growth don't match up. The median regional housing market was overvalued by 23% according to Moody's. In just two years, that percentage point increase has been made.
The US housing market is once again overvalued. The industry says that real estate is local.
The housing boom was not a one-size-fits-all event. As white-collar professionals realized that they could work remotely on a permanent basis, they went to places like Atlanta and Las Vegas that were more affordable. Atlanta and Las Vegas exploded with buyer interest, while New York and San Francisco were relatively cool.
The regional divergence means that some housing markets were more expensive than others. The New York City metro is one of the best places to look. It was overvalued in the first quarter of 2006 It's over valued by 8%. Las Vegas is now overvalued by 53.3%, just slightly below its 2006 first quarter reading.
There are 27 housing markets that are overvalued by at least 50%. Only two of those are located in the US. The epicenter of this boom are the Sun Belt and Mountain West.
Is it overvaluation? Check to see if it's true. Speculation is something we should look at.
The Federal Reserve had every tool at its disposal during the COVID-19 recession. Mortgage rates went to historic lows as a result.
Those low rates were too good of a deal for investors to pass up. The Harvard Joint Center for Housing Studies found that investors' purchases of single- family homes hit an all-time high earlier this year.
Long-term investors were not the only ones to jump in. Home price appreciation attracted short-term flippers. A total of 114,206 homes were "flipped" in the first quarter of the year. In the years leading up to the 2008 bubble, that quarter was higher than the previous one.
What does that mean? There was a rush of investors buying up homes in the U.S. It's not possible to get a housing bubble without speculation.
The U.S. housing market has met two key elements for a housing bubble, but it doesn't mean we are in one. The final component is a housing bust.
The Pandemic Housing Boom was not the result of a lending boom. Look at their balance sheets. In the fourth quarter of 2007, 7.1% of U.S. disposable personal income went towards mortgage debt service payments The figure was 3.9% in the first quarter. That's important. Many of the nation's biggest financial firms, like Bank of America and Citigroup, were on the verge of collapse as a result of the housing market correction. The combination of tighter lending standards and healthier balance sheets should prevent a housing correction.
There is no expectation that the aftermath of a housing correction will be as bad as the Global Financial Crisis. Household balance sheets appear in better shape, and excessive borrowing doesn't seem to be fueling the housing market boom, according to Dallas Fed researchers.
Maybe it isn't a housing bubble. We can't rule out rough times in some markets.
Mortgage rates have gone up as the Federal Reserve starts to fight inflation. Home prices moved up too high too fast because of high demand. He doesn't think this is a bubble, but he does think it could be a drag on future home price growth.
The market won't face a Great Financial Crisis-like bust because of the different dynamics today around mortgage lending standards and strong builder balance sheets. The market is already going in a different direction. Demand surged in many parts of the country when home prices and mortgage rates went up. Home prices are already adjusting down and we could see that continue until consumer confidence and affordability resets.
If you want to know more about housing, follow me on the social media site.
All Rights Reserved © 2024
