When Bearishness is Bullish
As the 2017 housing market officially gets underway, at least a few Realtors are dealing with Buyers haunted by the post-2008 housing crash — and the fear that something like that could happen again.
How warranted are those fears?
Housing Market Vital Signs: Checklist
Unfortunately, bubbles are usually only obvious in retrospect (the recent Crash being a notable exception. Even then, plenty of folks were so early predicting a crash that they were essentially wrong).
On the plus side, how solid or frothy housing is at any given moment turns on a short list of easily examined variables.
Such as:
–Recent appreciation. In 2006, most U.S. housing markets had just enjoyed five or more years of double-digit growth. Places like Las Vegas, South Florida, and Phoenix were going up more than 20% annually during much of that time.
Today?
The Twin Cities housing market overall was up 6% – 8% last year; this year is forecast to be a more modest 3% – 5%.
–Interest rates. Back then, mortgage rates were over 5%. Now, after years under 4%, they’re in the mid-fours — which is where experts like Edina Mortgage’s Steve Mohabir expect they’ll stay, at least for the first half of 2017.
–Underwriting standards. If you didn’t know, this was THE culprit behind the 2008 Crash and the ensuing housing market bust (in fact, housing prices peaked nationally in mid-2006).
In a nutshell, there weren’t underwriting standards back then. Thanks to financial engineering courtesy of Wall Street, mortgages were made to be securitized (bundled) and re-sold by the trillions; the actual homes, buyers, and sellers were just a means to that end.
A decade ago, lenders — and there were lots of them, in all shapes and sizes — were offering double and triple what my clients were comfortable borrowing.
Today? Not so much.
–Overall economy. Entering 2017, the economy still ain’t great, but it’s better than it’s been in years. Single family new construction has picked up, but is still at historically depressed levels (due in large part to chastened builders; see also, “Buyer Psychology,” below).
By contrast, leading up to the 2008 Crash, overheated housing and record construction accounted for a disproportionately large chunk of the economy.
–Buyer Psychology: anyone working with Buyers today knows that there’s a residual leeriness, especially amongst Baby Boomers who saw their home equity disappear or turn (deeply) negative. By contrast, a decade ago, many Buyers were convinced that real estate was a “can’t miss,” once-in-a-lifetime investment opportunity.
Ironically, such cautious behavior now is a check on unsustainably high housing prices (the definition of a bubble).
Bottom line?
Anything’s possible — can you say, “black swan??” — but at least to this observer, all the housing indices that were flashing yellow (or red!) back then appear to be more under control now, and less likely to generate the conditions for another housing bubble.
P.S.: The wild card in all of the above? Record-low housing inventory, which continues to stymie Buyers and their agents — not to mention would-be listing agents.
