Property, Property management, Vacation homes & real estate

Oh look, a new housing bubble.

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Bubble Bubble

For those who remember 2006, the U.S housing market was trapped in an ever increasing bubble. The state of the market was a surplus of built homes teamed with really bad mortgage products. When the market finally collapsed, millions of home owners sadly lost their homes along with their hard earned savings. The mass collapse got progressively worse all the way up to 2012, but let’s try and focus on the positive aspects.

Now in 2016, house prices are nearly 1% lower than peak 2006 prices and it’s for the right reasons! As of the end of June 2016, house price appreciation have remained constant for 50 months straight. Over the 50 month period, house prices have risen by nearly a third from 2012. The refreshing fact about these figures is that this is not a result from selling mortgages that people quite simply could not afford. The supply of homes is low nationwide and mortgage rates still remain low.

Ben Graboske is the senior vice president for Black Knight financial services, Graboske points out that the median income needed to buy a median priced home is currently sitting at 21%. This is a very positive figure because during the 2006 bubble was 36%, with interest rates currently being so low houses are very affordable.

Many people have the current concern that if rates go up in September, that could lower the demand for borrowing and create the knock-on effect of lowering house prices due to the slump in demand. Another factor to keep in mind for this current bubble and interest rates is the low rate factor. With low rates and increasing house prices, a lot of potential buyers still cannot qualify for a mortgage and with an appreciating house market, down payments/deposits are high and ever increasing. A simple rule of thumb; as house prices rise, so does the down payment.

The limited supply of properties is a strong force for the increase of property prices, the ‘06 crash has caused homebuilders to be wary of construction (new build figures are still below average). The short supply can also be attributed to home owners keeping their existing properties whilst buying new ones. With record mortgage lows and appreciating house prices, it does make sense to keep the property as a way to store wealth and eventually sell for a higher price.

Rental demand for single family homes is seriously strong and is also an attractive source of income. The younger generation are in a tough spot because with rents being so high, they are unable to save for the down payment of a property and if they do have the down payment some of them cannot qualify for a mortgage.

 The mentioned factors are just the tip of the ice berg for the appreciation of house prices, Q4 of 2016 would give us a great indication of how 2017 would be shaping up for property prices. 

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Tags:

Housing Bubble 2006, Housing Bubble 2016, American Real Estate, Renting Single Family homes, house price increases