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 Research at the real estate consulting firm Meyers Research, addressed this point in a recent 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.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which 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.
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.
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.
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:
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.
The post 5 Simple Graphs Proving This Is NOT Like the Last Time appeared first on Keeping Current Matters.HOME All Listings Featured Listings Sold Listings Sell My Home Home Evaluation AffordabilityCalculator MortgageCalculator Home Mortgage Cave Creek Carefree Scottsdale Paradise Valley Phoenix Fountain Hills Peoria Anthem Tempe Glendale Chandler Gilbert Mesa Prescott Flagstaff Sedona Tucson Show Low Pinetop-Lakeside DC Ranch McDowell Mountain Ranch Old Town Scottsdale Troon North Pinnacle Peak Carefree Grand View Estates Carefree Foothills Dove Valley Estates Leigh Estates Arroyo Trails I at Dove Valley Ranch Montacino Longview Estates Lone Mountain Desert Forest Park Dove Valley Ranch Highlands at Canyon Ridge Carefree Sentinel Rock Canyon Ridge Estates Palos Verdes Black Mountain Foothills Cave Creek South Black Mountain Shadows Provence The Villas at Black Mountain Tranquil Place Whispering Hills The Enclave at Dove Valley Ranch Camino de la Cruz Red Dog Ranch Emerald Greens at Dove Valley Ranch Mystic Ridge at Dove Valley Ranch The Crossings at Canyon Ridge Azure Hills Estates Panoramic Estates Continental Mountain Estates Desert Enclave Ridgeview Estates Crossings at Carefree Willow Springs Estates Nighthawk on Black Mountain Boulder Vista Estates Terraza at Dove Valley Ranch Blue Ridge Hills Stagecoach Pass Estates Desert Vista Trails Surrey Hills Arroyo Trails II at Dove Valley Ranch Rockaway Hills Colina Del Norte Rancho Manana Hawksnest Vista Montana at Dove Valley Ranch Cave Creek Mesquite Ranch Miramonte Carroll Heights Los Reales Ocotillo at Dove Valley Ranch Canyon Creek Estates Loringwood Estates Ridgecrest Highlands Las Ventanas Mystic Ridge II at Dove Valley Ranch Ocotillo Ridge Estates Estado de Cholla Vista Norte Lost Acres Hidden Valley North Entrada Scottsdale Heights Villagio at Dove Valley Ranch Arissona at Rockaway Valley Village at Miravista Tatum Ranch Clarendon Estates Hidden Valley Desert View Desert Fairways Azure Creek Ashler Hills Estates Tatum Village Cimarron at Tatum Ranch Casas del Cielo Desert Manor Estates The Enclave Desert Wind Toscana Falcon Ridge Quail Run Desert Ridge Terra Vista Ventana Chaparral Dove Valley Ranch Tapestry Lone Mountain Desert Willow Estates Amberwood Estates La Tierra Prometida Grayhawk Tatum Ranch Gray Wolf Central Scottsdale Desert Foothills North Kierland The Summit New on Market Private Pool AS SEEN ON HGTV YOUR TEAM REALTOR.COM YOU TUBE FACEBOOK ZILLOW SELLER FINANCED HOMES RENT TO OWN HOMES LEASE TO OWN HOMES SELL HOUSE FAST REVIEWS BLOG CONTACT