Housing Market Bubble?
2 Reasons the Housing Market is NOT in a Bubble
With housing prices appreciating at historic levels, some are concerned the market is heading for another bubble. To alleviate that fear, let’s look back at the reasons that caused the bubble 10 years ago.
Last decade, demand for housing was artificially propped up because mortgage lending standards were far too lenient. People who were not financially qualified to purchase were able to attain a mortgage anyway. Prices began to skyrocket. This increase in demand caused home builders to overbuild in many areas.
Over time, the excess in new construction and the flooding of the market with distressed properties (foreclosures & short sales), caused by the lack of appropriate lending standards, led to the housing crash.
Where We Are Today
1. If we look at lending standards based on the Mortgage Credit Availability Index released monthly by the Mortgage Bankers Association, we can see that, though standards have become more reasonable over the last few years, they are nowhere near where they were in the early 2000s.
2. Looking at new construction, we can see builders are not “over building”. Average annual housing starts in the first quarter of 2017 were not just below numbers recorded in 2002-2006, they are below starts going all the way back to 1980.
Real Estate Bottom Line
Mortgage lending standards are appropriate and new construction is below what is necessary. This should ease fears of another housing bubble.