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3 Graphs To Show This Isn’t a Housing Bubble

3 Graphs To Show This Isn’t a Housing Bubble 

Many of our clients are concerned that the rapid increase in prices we’ve seen in and around Tyler and across the state of Texas mean that we are in a housing bubble. As the housing market shifts, you may be wondering what’ll happen next. It some ways it feels like the upswing in home values that happened in 2008. Fortunately, there are reliable signs that the housing market is not about to crash. 

There’s a Shortage of Homes on the Market Today, Not a Surplus 

We need about six months’ worth of homes on the market to keep prices steady. Anything more than that is too many and will lead to the average home price falling. Anything less than six months supply is a shortage and will lead to competition for houses and an increase in the average price of homes. 

There were way too many homes for sale during the 2008 housing crisis.  More than ten months supply!  I remember trying to sell a home back then when homes could sit on the market for months.  Buyers had plenty of homes to choose from and that caused prices to fall. Today, supply is growing, but there’s still not nearly enough homes for sale to meet demand. 

The graph below uses data from the National Association of Realtors (NAR) to show how home inventory today compares to the crash. Right now, unsold inventory sits at just a 3.0-months’ supply at the current sales pace. 

After the Great Recession, a lot of home builders got out of the business, leading to fourteen straight years of underbuilding.  Combine the issue of underbuilding with the millennial generation aging into their peak homebuying years, economic development in the greater Tyler area, and continued migration to the State of Texas from all over the country.  The limited supply of homes compared to buyer demand is why experts forecast home prices won’t fall any time soon. 

Mortgage Standards Were Much More Relaxed During the Crash 

During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. The graph below shows the Mortgage Credit Availability Index (MCAI) The higher the number, the easier it is to get a mortgage. 

Running up to 2006, lenders lowered lending standards to make home ownership easier.  They took risks then that they don’t take any more about who they loan money to and how much they are willing to loan.  Those risky loans led to a lot of defaults, foreclosures, and falling prices. 

Today, things are different. Mark Fleming, Chief Economist at First American, says

Credit standards tightened in recent months due to increasing economic uncertainty and monetary policy tightening.”  

Stricter standards have headed off a crisis of defaults and foreclosures. 

Foreclosure Volume Is Nothing Like It Was During the Crash 

The number of homeowners that were facing foreclosure today is nothing compared to 2008. Foreclosure activity has been on the way down since the crash because buyers today are more qualified and less likely to default on their loans. 

Today, the average homeowner is equity rich. In the years leading up to the 2008 housing crash, many homeowners were using their home equity for cash out-refinances. Many immediately withdrew their equity once it built up. When home values began to fall, many homeowners nationwide found themselves under water – where the amount they owed on their mortgage was greater than the amount that they could get if they sold their house. Some of those households decided to walk away from their homes.  That led to a wave of bank-owned property listings which sold at less than they were worth and lowered the average value of other homes in the area. 

Today, prices have risen nicely over the last few years, and that’s given homeowners an equity boost. According to Black Knight

In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower….” 

With the average home equity now standing at $207,000, homeowners are in a completely different situation compared to the housing crash of 2008. 

Here’s the Deal 

Concerned home prices are going to crash?  The graphs above should be a comfort to you. If you think that history is repeating itself with a sudden drop in Tyler area home prices, this information should encourage you that prices should remain stable and increasing, although at a slower rate than we’ve seen the past two years. 

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