Nowhere has the US economic recovery been steadier than housing—which makes sense given it was among the hardest hit by the financial crisis of 2007-2008. But recent big gains have made some wonder if it’s too good to be true. Today we’ll look at both the cynical and optimistic views of the housing market to see if fears of a new housing bubble are misplaced.
All things considered, home prices are rising unusually fast across the country. In Dallas and Denver, home prices rose 18% and 20% over the past two years, surpassing the 2006 peak. Average home prices in many Western cities, like San Francisco and Seattle, are inching closer to their 2006 peaks as well. On a broader scale, home prices have risen 10% nationwide.
This all comes as credit conditions appear to be loosening. Ellie Mae’s average credit score of approved borrowers fell below to 719 in January—well below the average of last year. Put all these factors together, and it’s no wonder many people are nervous that we’re heading down the same road that took us to 2007 and the collapse of the economy.
Looking at one or two trends alone, it may appear obvious that we’re in the midst of a housing bubble. But to get a clear picture, all of the data needs to be taken into account.
Though credit has eased somewhat of late, it’s worth noting that we’re coming out of a long period of overly stringent credit conditions. Today’s mortgage approval process is worlds away from the easy subprime approvals of the bubble years. Credit scores for Fannie Mae-backed mortgages are between 740 – 750 compared to the 710 – 720 average during the bubble. Average credit scores for FHA mortgages are also up 40 – 50 points compared to the bubble years.
Total home mortgage balances grew in Q4 2015 for the first time in 9 years. Debt currently sits $1.5 trillion below the 2006 peak.
During the peak of the bubble, there were an average of 1.9 million new homes constructed every year. Over the past four years, the average has been less than 1 million a year.
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