History Is NOT Repeating Itself – Here’s Why:
In the last few years, home appreciation has continued to rise. As a result, prices have sparked a concern that a housing bubble is forming, and there is a fear the market will crash as it did 15+ years ago. We want to show you why this market is different from it at that time.
Housing Prices are Not Unaffordable Like They Were in the Housing Boom
Three monetary components define affordability: home price, wages earned, and current mortgage rates. Spending more than 28% of the gross household monthly income on a mortgage payment is typically not recommended.
During the housing boom 15 years ago, home prices were extremely high, wages earned were too low, and mortgage rates were high. Yes, home prices are high today, but salaries are higher than they were, and interest rates are at a record low. What does this mean? It means buyers are paying less of their monthly income towards a mortgage than 15 years ago.
During the Housing Boom Mortgage Standards Were Relaxed
Mortgages were easier to obtain during the housing boom than they are today. Buyers were approved with credit scores lower than 620 (619 and lower is considered poor). Buyers are now more qualified than they were back then and are held to higher mortgage standards.
Foreclosure Rates are Nothing Like They Were During the Housing Boom
During the housing boom, many homeowners were going into foreclosure. The graph below shows the HUGE difference in foreclosures from then to now.
Present-day homeowners have so much equity in their homes, and they are not drained financially. Leading up to the crash, homeowners were cashing out their equity, and then the home values dropped significantly – meaning these owners owed more than the worth of their home. Many had no option but to foreclosure their home. Now, equity is nearly up 50%, and homeowners are NOT tapping into it, helping them build more wealth.
We Have a Shortage of Homes Now, NOT a Surplus as We Did Before
The current shortage of homes has led to an increase in the value of homes, and the demand for homeownership is high. A regular real estate market needs six months of inventory to be sustained. Too much stock causes values to drop, and too little inventory will increase the values of homes.
The Truth is in the Data
If you are worried that history is repeating itself the truth is in the data. The number prove that things are much different this time around.
If you have questions about your Middle Tennessee homes worth give The DeSelms Team a call.