Bubble or Correction? We Say Correction and Here's Why

By
Real Estate Agent with www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 228209

Bubble or Correction? We Say Correction and Here's Why

 

Comparing apples to orangesRegardless of the market, you are going to find naysayers...and sometimes those naysayers can be "loud" and really give you pause. Lately I've heard a lot of speculation about our market 'bubble' and have done significant reading on this topic. Oddly enough, KCM posted some wonderful supporting graphics that drives my point home.

 

THE CONCERN: Are we repeating the 2006 housing bubble, with the resulting 2008 burst and another recession?

No - Today's housing market is quite different than the bubble market we experienced twelve years ago (can you believe it's been 12 years?).  These 4 points explain the differences:

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

 

 

1. HOME PRICES

Yes, home prices have reached and even surpassed 2006 averages in the Charlotte market. However, after more than a decade, home prices should actually be much higher, based on inflation alone.

Frank Nothaft is the Chief Economist for CoreLogic 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.” 

 

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. That couldn't be farther from the truth - in fact, today’s standards are nowhere near as lenient as they were leading up to the bubble burst.

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.”

Today's standards are much tighter on a borrower’s credit situation and have all but eliminated the riskiest loan products.

Housing affordability index

3. MORTGAGE DEBT

We are all familiar with the stories of the homeowners who mistakenly used their homes as ATMs in 2006, withdrawing their equity and spending it with no concern for future ramifications. They piled debt on top of mortgage debt and were unable to repay these debts when the market crashed. As above (#2) explains, the mortgage standards are far higher in 2018 than they were in 2006.

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.

In 2006, that ratio was 7.21%, meaning that 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

Despite the fact that both house prices and mortgage rates on the rise, the housing affordability for buyers is as well. The Housing Affordability Index, released by the National Association of Realtors, provides us data reflecting that homes are more affordable now than at any other time since 1985 (with the exception of the period immediately following the bubble burst in 2008).  

Housing Affordability

 


 

 

IN SUMMARY

After reviewing the four key housing metrics to compare today to 2006, it is quite clear that the current market is nothing like the 2006 bubble market. So, let the naysayers be naysayers...the numbers tell the true story.

 

For more information on the Charlotte market or any of our local communities in the Metro region, give me a call or text at (704) 491-3310.

 

© Debe Maxwell | The Maxwell House Group | CharlotteBroker@icloud.com | Bubble or Correction? We Say Correction and Here's Why

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Real Estate Market Trends
Location:
North Carolina Mecklenburg County Charlotte
Groups:
North Carolina Real Estate
Charlotte North Carolina Area
Buyer Information - What Buyers Need to Know in Today's Market
Advice for Sellers
Hyper-Local
Tags:
charlotte home buyer tips
charlotte home seller information
bubble or correction

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Anonymous
Nikkia

Awesome Post

May 16, 2018 05:48 PM #16
Rainmaker
480,641
Ellen Caruso
Daniel Gale Sotheby's International Realty - Glen Head, NY

Very clearly put, no bubble on the horizon, just active sales and plenty of buyers demand driving up housing values.

May 16, 2018 06:34 PM #17
Rainmaker
1,692,624
Patricia Feager
DFW FINE PROPERTIES - Southlake, TX
Selling Homes Changing Lives

Love this post! Very informative and smart thinking. I'm working on getting the facts for my area now. It takes a lot of research and facts are important.

Great job!

May 16, 2018 06:45 PM #18
Rainmaker
1,978,837
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

People with no to little understanding of how the housing market crashed often misunderstand where we are now. They think the only that matters is rising prices. Prices can continue to rise and there will be no crash for precisely the reasons you stated. How can you be belly up when you have 100% equity and no mortgage, LOL?

May 16, 2018 07:10 PM #19
Ambassador
2,479,638
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

That is so true, John Henry - knowing the facts always helps avoid stress...or at least, address it head-on!

May 16, 2018 09:21 PM #20
Ambassador
2,479,638
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

@Nikkia - Thank you!

May 16, 2018 09:21 PM #21
Ambassador
2,479,638
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

Ellen Caruso - Absolutely! There's a big difference and it's concerning when those in our own profession project that this is a bubble! It just seems crazy to me! 

May 16, 2018 09:22 PM #22
Ambassador
2,479,638
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

YES, they are Patricia Feager! The consumer deserves to have a full understanding of our individual markets. We are not always (or rarely) on target with national averages!

May 16, 2018 09:24 PM #23
Ambassador
2,479,638
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

As I mentioned above, Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents, it's difficult to believe that those in our profession are 'predicting' a bubble burst...in our 'near future!' Clueless, I say, totally clueless!

May 16, 2018 09:26 PM #24
Rainmaker
4,552,751
Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

This is excellent information to share with prospective home buyers.

May 17, 2018 03:48 AM #25
Rainmaker
335,436
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL Real Estate GRI, SRES,GREEN,PSA

Debe Maxwell, CRS is indeed the kind of professional the consumer should work with to handle their real estate needs.

Debe, it is so important to know the numbers, for they show us a glimpse of reality. What a great post you have put together to show us where we are in the market.

Thanks

May 17, 2018 08:34 AM #26
Ambassador
3,267,365
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Debe- you've written an excellent clarification of the market and where it is and isn't headed. Thankfully, we're not seeing the frenzy that existed back then. I can remember looking at a little community north of Naples back in 2007.  I'd bet that 90% of the homes were listed and those were all investors. Not seeing that today. .

May 17, 2018 09:44 AM #27
Ambassador
1,686,468
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Very well thought material. I am a bit surprised and envious at the same time, as we are not talking about any bubble in our market. And we would love to :)

May 17, 2018 09:48 PM #28
Ambassador
3,550,975
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Debe

This is excellent, with plenty of good data, easy to understand graphics, and solid analysis as a rebuttle to a bubble. Great read for all, but especially those who might be concerned.

Jeff

May 17, 2018 10:32 PM #29
Ambassador
3,267,365
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

                                                       

       Thank you Debe!

May 19, 2018 05:54 PM #30
Rainmaker
1,345,249
Georgie Hunter R(S) 58089
Hawai'i Life Real Estate Brokers - Haiku, HI
Maui Real Estate sales and lifestyle info

This time around it doesn't feel anything like last time.  No bubble bursting on Maui as there's just not enough homes and prices keep going up because they can.

May 20, 2018 12:48 AM #31
Rainmaker
3,386,030
Dorie Dillard
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good morning Debe Maxwell, CRS,

What an excellent post! Extremely well reserached and makes way too much sense. I 'm not sure how I missed this post. There will always be naysayers whom I avoid like the plague. You have once again been a voice of reason backed up by solid data and an analysis as a rebuttal to those saying we are in a bubble. I'm so glad Kathy Streib featured in her "Ah Ha" moments for the week. The AR Gods are snoozing..it should have a gold star!

May 20, 2018 06:46 AM #32
Rainmaker
8,831
Ricardo Mello
Manhattan Miami Real Estate - Manhattan, NY
Manhattan & Miami Real Estate Broker

Excellent article!

May 20, 2018 08:38 AM #33
Ambassador
1,670,209
Hannah Williams
Re/Max Eastern inc. - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-953-8818

Debe Maxwell, CRS  I agree home prices were escalating at a much faster pace also .Great article

May 20, 2018 10:38 AM #34
Rainmaker
1,465,419
Sybil Campbell
Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia - Williamsburg, VA
REALTOR® ABR, SFR, SRES Williamsburg, Virginia

I hope we never get back into the scenario that led to the bubble of 2006.

May 20, 2018 11:32 AM #35
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Ambassador
2,479,638

Debe Maxwell, CRS

Charlotte Homes for Sale - Charlotte Neighborhoods
Have questions about Charlotte? How may we help?
*
*
*
*
Spam prevention

Additional Information