The U.S. is nearing the 10-year anniversary of the 2006-2007 housing bubble. Should Americans be worried that history could repeat itself? After all, home prices have risen above the bubble era in many hot markets like Seattle, Denver and San Diego.
Housing experts say there are many reasons why Americans shouldn’t be concerned about a housing crisis repeat anytime soon, including:
1. Fixed-rate loans have become more common. Many Americans have refinanced to a fixed-rate mortgage so when interest rates begin to rise – which is largely predicted to happen next month – there will not be as much shock with short-term Adjustable Rate Mortgages compared to the 2008-2009 era. In 2008-2009, many Americans had their ARMs reset and then could no longer afford their mortgage payments, which sent defaults skyrocketing.
2. Old distress is being flushed out through bank repossessions. Bank repossessions have recently reached the highest levels in more than two years. But the reason behind the climb has been attributed to banks who are flushing out old distress rather than adding more.
3. Foreclosures have fallen dramatically. Despite the uptick in bank repossessions, the number of loans in foreclosures is 2.1 percent. That marks the lowest level since 2007, according to the Mortgage Bankers Association.
4. First-time buyer programs are bringing new buyers into the market. New programs to assist first-time home buyers with a down payment are growing. The Federal Housing Administration this year moved to reduce its annual mortgage insurance premiums by up to $900 per year. That move alone has been predicted to help jump-start home sales by up to 5.6 million, which would be the most since 2006. What’s more, it could lure 140,000 new buyers to the market, according to the National Association of REALTORS®.
5. The economy is strengthening. Over the past five years, the U.S. has added jobs at a steady rate, now replacing many of the jobs that had been lost during the recession. Also, the quality of jobs is improving as the economy strengthens.
6. New-home construction remains dismal. The supply of existing homes for-sale is lower today than it was in 2000 – despite the population growing by more than 14 percent. Also, new single-family starts remain 60 percent below the peak in 2006 and are about 25 percent below the average for the past 15 years. An oversupply of the homes on the market isn’t likely any time soon.
7. Average Residential Home Prices Have Risen at a Slow, Steady Pace. Though in some extremely hot markets like Seattle, Denver and San Francisco prices have more than recovered and even passed 2006 levels, nationally prices for average residential homes have risen at a slow, steady pace. According to the S&P/Case-Shiller Composite 10-Home Price Index, residential home prices remained 15 percent below their April 2006 peak as of July 2015.
8. Commercial Real Estate Remains Below Peak Levels. Commercial real-estate fundamentals are similarly healthy, and although commercial real estate prices have increased steadily since the crash, they still remain below peak levels. Vacancy rates are at or near all-time lows for apartments and warehouses, and are at their lowest post-crisis point for office and retail properties. Commercial real-estate development also remains more than 25% below its pre-recession peak, which has led to improved property fundamentals, with both occupancy rates and rents rising.
Although recent news headlines may be reminiscent of the bubble era, the fundamental conditions that led to the crash have diminished. The real-estate market today has a stronger foundation than it did in 2006, thanks to more disciplined and conservative credit underwriting of debt and a market that is much healthier than it has been at any point during the past decade.
Nearly 10 years after the bubble began, the message to investors is clear: Rest assured you are looking at a chastened and more disciplined market in which to participate -- not another looming bubble.
Introducing SpyDoor; The Cascade Team’s Automated Valuation Solution
- The only home valuation tool to go “Hyper”-Local with communities as small as 10 homes.
- Blending fully integrated MLS Sold, Active and Pending data with Tax records and County Assessed values.
- Ability to manually adjust values such as: # of Beds, Baths, sq ft, etc
- Full demographics down to the Hyper Local level
- Pull school boundaries with regular updates from State and county websites.
Your Home’s Value/ Your Neighbor’s Home Value/ Any Home Down the Street
The Cascade Team has deployed a class of an Automated Valuation Model (AVM) that has stood the test of time. It employs both a Hedonic modeling approach and Market Comp approach yielding several potential valuations of the home.
1) Hedonic: This tool uses a multivariate modeling approach that compares the subject property being valued to the nearby sales in the area that most closely emulate the subject property. Using its unique SpatialMatch® search engine, SpyDoor locates sales data by proximity and “comparability” to the subject property. The search radiates out from the subject property and once a sufficient number of comparables has been found, the SpyDoor AVM performs regression analysis on the data and outputs a value based on the use of the sales in closest proximity and likeness to the subject property.
2) Market Comp Approach: Devised and refined by a long standing SRA Appraiser with 25 years of experience, this valuation application emulates an appraiser’s thought process for sales comparable selection and makes adjustments for variances in the comps relative to the subject property. This methodology has been refined over many years. Once these adjustments are made, a valuation estimate is determined by the software application.
3) Blended Value: This is a very straightforward application. The formula is simply Hedonic + Market Comp Approach / 2. This allows the user to have three separate looks at a value in one model.
The Cascade Team has devised the most advanced home pricing program integrating the most complex and market accurate data anywhere. This customer facing tool blends MLS, Tax Assessed Values and SRA Appraiser tactics into one easy to use application.
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