Welcome to the LITopAgent.com Blog

2018-05-08 12:33:36
Why Today's Market is Not The Same as 2006

4 Reasons Why Today’s Housing Market Is NOT 2006 All Over Again

4 Reasons Why Today’s Housing Market is NOT 2006 All Over Again

With home prices rising again this year, some are concerned that we may be repeating the 2006 housing bubble that caused families so much pain when it collapsed. Today’s market is quite different than the bubble market of twelve years ago. There are four key metrics that explain why:

  1. Home Prices
  2. Mortgage Standards
  3. Mortgage Debt
  4. Housing Affordability

1. HOME PRICES

There is no doubt that home prices have reached 2006 levels in many markets across the country. However, after more than a decade, home prices should be much higher based on inflation alone.

Frank Nothaft is the Chief Economist for CoreLogic (which compiles some of the best data on past, current, and future home prices). Nothaft recently explained:

“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2006, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” (emphasis added)

2. MORTGAGE STANDARDS

Some are concerned that banks are once again easing lending standards to a level similar to the one that helped create the last housing bubble. However, there is proof that today’s standards are nowhere near as lenient as they were leading up to the crash.

The Urban Institute’s Housing Finance Policy Center issues a Housing Credit Availability Index (HCAI).According to the Urban Institute:

“The HCAI measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”

The graph below reveals that standards today are much tighter on a borrower’s credit situation and have all but eliminated the riskiest loan products.

4 Reasons Why Today’s Housing Market is NOT 2006 All Over Again | Keeping Current Matters

3. MORTGAGE DEBT

Back in 2006, many homeowners mistakenly used their homes as ATMs by withdrawing their equity and spending it with no concern for the ramifications. They overloaded themselves with mortgage debt that they couldn’t (or wouldn’t) repay when prices crashed. That is not occurring today.

The best indicator of mortgage debt is the Federal Reserve Board’s household Debt Service Ratio for mortgages, which calculates mortgage debt as a percentage of disposable personal income.

At the height of the bubble market a decade ago, the ratio stood at 7.21%. That meant over 7% of disposable personal income was being spent on mortgage payments. Today, the ratio stands at 4.48% – the lowest level in 38 years!

4. HOUSING AFFORDABILITY

With both house prices and mortgage rates on the rise, there is concern that many buyers may no longer be able to afford a home. However, when we look at the Housing Affordability Index released by the National Association of Realtors, homes are more affordable now than at any other time since 1985 (except for when prices crashed after the bubble popped in 2008).

4 Reasons Why Today’s Housing Market is NOT 2006 All Over Again | Keeping Current Matters

Bottom Line

After using four key housing metrics to compare today to 2006, we can see that the current market is not anything like the bubble market.

 
Blog Archive
2020-02-20 12:59:45
What's the skinny on jumbo loans?

2020-02-20 12:58:21
5 Advantages of Buying & Selling NOW!

2020-02-20 12:56:26
What is private mortgage insurance?

2020-02-03 08:26:10
Market Movement

2020-02-03 08:04:48
Economic Roundup February 2020

2020-01-30 11:10:10
5 myths surrounding home loans

2020-01-29 13:29:03
Cost vs. Value: 2020 Home Improvement Projects With the Highest ROI

2020-01-27 08:13:06
Housing is Healthy Heading Into 2020

2020-01-24 08:48:40
What Happens at Closing?

2020-01-20 12:30:23
Inspections vs. Appraisals vs. AVMs

2020-01-20 12:28:39
Credit Scores Demystified

2020-01-09 14:29:00
A quick guide to home loans on investment properties

2020-01-09 14:27:25
What will 2020 Bring for Borrowers?

2020-01-08 10:55:31
4 Resolutions for Home Improvements to Make in 2020

2020-01-08 10:54:12
4 Things NOT to Do When Putting Your Home on the Market

2020-01-03 07:01:20
Economic Roundup January 2020

2019-12-20 09:53:47
FROM ONLINE TO IN STORE: HOW TO CRAFT THE PERFECT HOLIDAY SOCIAL MEDIA MESSAGES

2019-12-13 07:55:34
How to know when refinancing is a good or bad idea

2019-12-11 08:50:10
Exploring the benefits of VA home loans

2019-11-25 09:22:55
Market Movement November 2019

2019-11-21 08:45:55
Easy Ways to Give Back During The Holidays

2019-11-20 10:50:13
REAL ESTATE NEWS

2019-10-31 12:05:18
Your mortgage refinance checklist:

2019-10-30 08:06:05
Pending Sales Surprise, Up 1.5 Percent

2019-10-28 09:03:58
Learn About Your Local Neighborhood -- Or One You're Considering

Click here to see ALL articles.


Comment on this Article

Your Name:
Your Email:
Comments:
Verify:  Please enter the numbers shown to help eliminate spam.