Let’s begin this month with the burning question: Are we in a housing bubble right now? We know home prices have increased drastically and quickly this year.
According to CoreLogic, year-over-year price appreciation is accelerating.
The Fed just came out and said that back in 2006, $376 billion worth of mortgage loans were originated with a credit score of 620 or lower. Last year, it was just $74 billion. Buyers today are more qualified.
The 30-year fixed rate sits at 2.8% right now. Last year that hit a new low 16 times, but let’s take a look at credit availability according to NAR’s Mortgage Credit Availability Index.
With this index, the higher the number the easier it is to get a loan. It is obvious we have no where near the credit availability we had back then. Just this past year, mortgage products have left the market, and credit has tightened. Back in the housing crisis demand was inflated, whereas today that demand is real and people are buying homes they can afford.
Taking a look at mortgage debt and affordability, here is the Fed’s report on the household debt service ratio for mortgages as percent of disposable personal income (the money you have left over after you have paid your taxes). At the height of the housing crisis, the mortgage or the household debt service ratio was 7.21%. Today, we are just under 3.5%. We are in a very, very different situation.
There are two topics when it comes to affordability. One is affordable housing, which typically refers to homes on the lower end of any market. Housing affordability refers to what the dollar will buy. While there is no doubt we need more homes in the lower end of the markets across the country, here we are talking about housing affordability.
When we hear that homes aren’t as affordable today, we have to ask: As compared to when? Over the last couple years homes were more affordable than they are today, but as compared to 3 years ago, they are actually more affordable today.
Here is where affordability stands according to NAR from January through May. It is likely that affordability will become more of a challenge before it gets better. Remember that affordability is based on several components: home prices, interest rates, and wages. Interest rates are forecasted to increase. Home prices are forecasted to increase. Both factors will eat into affordability. This is not a housing bubble. It’s a supply-and-demand issue.
Completed single-family houses has been below the 50-year average for the past 13 years. We don’t have enough homes to keep up with population growth across the country, and that has fueled this spike in prices. As interest rates and prices rise, we will not see depreciation, but a slower appreciation going forward.
Moving on to the next burning question: Are we going to see a wave of foreclosures coming to the market?
Let’s take a look at where experts originally projected forbearance would lead. Initially, experts said 30% of all mortgages would go into the forbearance program, and all of those would lead to foreclosures. In reality that number topped out at 8.47%, and today it’s down to 3.5% or 1.86 million mortgages.
1.86 million mortgages is great progress from where we started with nearly 5 million mortgages in forbearance in May of last year. So… what happens when homeowners exit the forbearance plan?
Most homeowners (44.1%) are exiting the forbearance plan are walking current on their payments or with a modification plan. However, 15.7% are exiting forbearance without a loss mitigation plan. The silver lining here is that, according to Black Knight, nearly 87% of homeowners in the forbearance plan have at least 10% equity. That means they can sell their home, protect their investment, and avoid the foreclosure process.
Experts are saying that the number of homes that could still go to foreclosure is roughly 200,000 to 300,000 mortgages. Our hearts go out to anyone who ends up in this situation. It is nothing we would ever want to see happen to so many after such a tough year. However, it is a much better situation than the 9.3 million homes that went into foreclosure between 2006 and 2014.
With today’s low inventory, foreclosures will not cause massive price declines.
In other news, the housing boom is finally over. According to NAR’s Buyer Traffic Report, you can see home sales dropping to new lows. In April of 2021, there was very strong buyer traffic (dark blue). As the map get lighter shades of blue in May and June, it is obvious there is stable traffic, but there is no longer a sense of urgency in the market.
However, we are still ahead of where we were this time last year.
We are clearly in a seller’s market, but we are on the front end of this shift in real estate coming out of the last year.
In summation, there is no prediction for price decline, but appreciation will slow as we go into the second half of the year.
Below is how we wrapped up August in the Tallahassee. These numbers trend with a typical August, because even though we have a low supply of homes across most price ranges, we are filling the demand.
