It’s not a housing bubble: 3 reasons

WASHINGTON – March 17, 2016 – Home prices are rising three to four times faster than wages, and credit conditions are loosening, say Lawrence Yun, chief economist for the National Association of Realtors®. Those conditions usually prompt housing analysts to start uttering the words “housing bubble,” but Yun discounts those warnings.

“Even though the credit conditions appear to be easing somewhat, the move is from overly stringent conditions to not-so-overly-stringent conditions,” Yun writes on “It is a far-fetched view to imply the current mortgage approval process in any way resembles the loosey-goosey, easy subprime mortgage access conditions of a decade ago.”

Reason one: Mortgage credit scores today aren’t anywhere near where they were during the housing bubble. Today, approval scores average about 740 to 750 compared to 710 to 720 during the housing crisis, according to Fannie Mae data.

Reason two: The no-doc requirements for subprime mortgages of yesteryear are nearly gone today.

Yun also says that while home prices are rising above wages, low mortgage rates have been a silver lining.

“For someone making a 20 percent downpayment, the monthly mortgage payment at today’s mortgage rates would take up 15 percent of a person’s gross income,” Yun writes. “During the bubble years, it was reaching 25 percent of income.”

Reason three: Yun says experts can squash bubble fears by just looking at the housing supply. Inventories are at about four to five months today, which is similar to the bubble years.

However, sales aren’t moving at the same pace. Existing-home sales and new-home sales combined were at 8.4 million back then. In 2015, combined home sales were 5.76 million – about one-third lower.

A limited supply of for-sale homes is mostly behind the latest home-price increases, Yun says.

“We are not in a housing market bubble in terms of an inevitable impending home-price crash,” Yun says. “Rather, we are facing an above-normal home-price growth trend, which admittedly is unhealthy on several levels because of the simple economic law of insufficient supply. We need more homebuilding.”

Source: “Are we Entering a New Housing Bubble?” (March 14, 2016)

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