With home prices continuing to deliver double-digit increases, some are concerned we're in a housing bubble like the one in 2006. However, a closer look at the market data indicates this is nothing like 2006 for three major reasons.

1. The housing market isn't driven by risky mortgage loans.

Back in 2006, nearly everyone could qualify for a loan. The Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers' Association is an indicator of the availability of mortgage money. The higher the index, the easier it is to obtain a mortgage. The MCAI more than doubled from 2004 (378) to 2006 (869). Today, the index stands at 130. As an example of the difference between today and 2006, let's look at the volume of mortgages that originated when a buyer had less than a 620 credit score.Dr. Frank Nothaft, Chief Economist for CoreLogic, reiterates this point:

There are marked differences in today's run up in prices compared to 2005, which was a bubble fueled by risky loans and lenient underwriting. Today, loans with high-risk features are absent and mortgage underwriting is prudent.

2. Homeowners aren't using their homes as ATMs this time.

During the housing bubble, as prices skyrocketed, people were refinancing their homes and pulling out large sums of cash. As prices began to fall, that caused many to spiral into a negative equity situation (where their mortgage was higher than the value of the house).

Today, homeowners are letting their equity build. Tappable equity is the amount available for homeowners to access before hitting a maximum 80% combined loan-to-value ratio (thus still leaving them with at least 20% equity). In 2006, that number was $4.6 billion. Today, that number stands at over $8 billion.

Yet, the percentage of cash-out refinances (where the homeowner takes out at least 5% more than their original mortgage amount) is half of what it was in 2006.

3. This time, it's simply a matter of supply and demand.

FOMO (the Fear Of Missing Out) dominated the housing market leading up to the 2006 housing bubble and drove up buyer demand. Back then, housing supply more than kept up as many homeowners put their houses on the market, as evidenced by the over seven months' supply of existing housing inventory available for sale in 2006. Today, that number is barely two months.

Builders also overbuilt during the bubble but pulled back significantly over the next decade. Sam Khater, VP and Chief Economist, Economic & Housing Research at Freddie Mac, explains that pullback is the major factor in the lack of available inventory today:

The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.

Here's a chart that quantifies Khater's remarks:Today, there are simply not enough homes to keep up with current demand.

Bottom Line

This market is nothing like the run-up to 2006. Bill McBride, the author of the prestigious Calculated Risk blog, predicted the last housing bubble and crash. This is what he has to say about today's housing market:

It's not clear at all to me that things are going to slow down significantly in the near future. In 2005, I had a strong sense that the hot market would turn and that, when it turned, things would get very ugly. Today, I don't have that sense at all, because all of the fundamentals are there. Demand will be high for a while because Millennials need houses. Prices will keep rising for a while because inventory is so low.

 

Last week, Fannie Mae released their Home Purchase Sentiment Index (HPSI). Though the survey showed 77% of respondents believe it's a good time to sell, it also confirms what many are sensing: an increasing number of Americans believe it's a bad time to buy a home. The percentage of those surveyed saying it's a bad time to buy hit 64%, up from 56% last month and 38% last July.

The latest HPSI explains:

Consumers also continued to cite high home prices as the predominant reason for their ongoing and significant divergence in sentiment toward homebuying and home-selling conditions. While all surveyed segments have expressed greater negativity toward homebuying over the last few months, renters who say they are planning to buy a home in the next few years have demonstrated an even steeper decline in homebuying sentiment than homeowners. It's likely that affordability concerns are more greatly affecting those who aspire to be first-time homeowners than other consumer segments.

Let's look closely at the market conditions that impact home affordability.

A mortgage payment is determined by the price of the home and the mortgage rate on the loan used to purchase it. Lately, monthly mortgage payments have gone up for buyers for two key reasons:

1. Mortgage rates have increased from 2.65% this past January to 2.9%.
2. Home prices have increased by 15.4% over the last 12 months.

Based on these rising factors, a home may be less affordable today, but it doesn't mean it's not affordable.

Three weeks ago, ATTOM Data released their second-quarter 2021 U.S. Home Affordability Report which explained that the major ownership costs on the typical home as a percent of the average national wage had increased from 22.2% in the second quarter of 2020 to 25.2% in the second quarter of this year. They also went on to explain:

Still, the latest level is within the 28 percent standard lenders prefer for how much homeowners should spend on mortgage payments, home insurance and property taxes.

In the same report, Todd Teta, Chief Product Officer with ATTOM, confirms:

Average workers across the country can still manage the major expenses of owning a home, based on lender standards.

It's true that monthly mortgage payments are greater than they were last year (as the ATTOM data shows), but they're not unaffordable when compared to the last 30 years. While payments have increased dramatically during that several-decade span, if we adjust for inflation, today's mortgage payments are 10.7% lower than they were in 1990.

What's that mean for you? While you may not get the homebuying deal someone you know got last year, that doesn't mean you shouldn't still buy a home. Here are your alternatives to buying and the trade-offs you'll have with each.

Alternative 1: I'll rent instead.

Some may consider renting as the better option. However, the monthly cost of renting a home is skyrocketing. According to the July National Rent Report from Apartment List:

…So far in 2021, rental prices have grown a staggering 9.2%. To put that in context, in previous years growth from January to June is usually just 2 to 3%. After this month's spike, rents have been pushed well above our expectations of where they would have been had the pandemic not disrupted the market.

If you continue to rent, chances are your rent will keep increasing at a fast pace. That means you could end up spending significantly more of your income on your rental as time goes on, which could make it even harder to save for a home.

Alternative 2: I'll wait it out.

Others may consider waiting for another year and hoping that purchasing a home will be less expensive then. Let's look at that possibility.

We've already established that a monthly mortgage payment is determined by the price of the home and the mortgage rate. A lower monthly payment would require one of those two elements to decrease over the next year. However, experts are forecasting the exact opposite:

• The Mortgage Bankers Association (MBA) projects mortgage rates will be at 4.2% by the end of next year.
• The Home Price Expectation Survey (HPES), a survey of over 100 economists, investment strategists, and housing market analysts, calls for home prices to increase by 5.12% in 2022.

Based on these projections, let's see the possible impact on a monthly mortgage payment:By waiting until next year, you'd potentially pay more for the home, need a larger down payment, pay a higher mortgage rate, and pay an additional $3,696 each year over the life of the mortgage.

Bottom Line

While you may have missed the absolute best time to buy a home, waiting any longer may not make sense. Mark Fleming, Chief Economist at First American, says it best:

Affordability is likely to worsen before it improves, so try to buy it now, if you can find it.

 

In real estate, it's normal to see ebbs and flows in the market. Typically, the summer months are slower-paced than the traditionally busy spring. But this isn't a typical summer. As the economy rebounds and life is returning to normal, the real estate market is expected to have an unusually strong summer season.

Here's how this summer is stacking up against the norm and what it means for you.

Inventory is increasing.

According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), inventory levels have been rising since February of this year. Looking at the graph below, there's a clear upward trend, as shown in the green bars. Currently, there's roughly a 2.5 months' supply of homes for sale. And while inventory is trending up as more houses are coming to the market, it's still much lower than several of the previous summers, as the orange bars indicate.If you're looking to buy, some relief is on the way in the form of more homes coming to the market. Just remember, we still have less inventory than the norm, so be patient in your search.

If you're thinking of selling, now is the time. Work with your agent to list your house before it has more competition on the market.

Time on the market is still shorter than normal.

Unlike the typical summer trend, time on the market is moving at the fastest speed we've seen since NAR started collecting this survey-based information in 2011. The most recent Realtors Confidence Index shows that the average home is on the market for just 17 days, as shown in green in the graph below. This means houses are selling at a much faster pace than a typical summer, which the orange bars represent.If you're looking to buy, this means you need to be prepared to move fast. Brace for a quick pace and rely on your agent to stay in the know on the available homes in your area.

If you're thinking of selling, data shows your house will likely sell quickly. If you're worried about where you'll go once your house sells, consider a newly built home as a good way to move up.

Price appreciation is still rising.

The last big factor making this an unusually strong market this summer is home price appreciation. According to the State House Price Index from the Federal Housing Finance Agency (FHFA), we're currently experiencing double-digit house price appreciation and have an average of 12.6% appreciation across the country. The graph below uses data from NAR to show a more granular view of how prices have changed month-to-month over the past few years. The green bars show the current price appreciation we're experiencing today. Our current levels are well above what we've seen in recent summers, shown by the orange bars.If you're looking to buy, competition and bidding wars are driving prices up. Getting pre-approved can show the seller you're serious and help you know what you can afford. Once you do, work with your agent to make a strong offer that stands out.

If you're thinking of selling, seize this opportunity to use your additional equity from this price appreciation to power your next move.

Bottom Line

This isn't a typical summer. Whether you're buying or selling, let's connect to talk about how you can capitalize on today's market conditions to sell your house or find your dream home.

While the housing market forecast for the second half of the year remains positive, there may not be a better time to sell than right now. Here are four things to consider if you're trying to decide if now's the right time to make a move.

1. Your House Will Likely Sell Quickly

According to the most recent Realtors Confidence Index released by the National Association of Realtors (NAR), homes continue to sell quickly. The report notes homes are selling in an average of just 17 days.

Average days on market is a strong indicator of buyer competition, and homes selling quickly is a great sign for sellers. It's one of several factors that indicate buyers are motivated to do what it takes to purchase the home of their dreams.

2. Buyers Are Willing To Compete for Your House

In addition to selling fast, homes are receiving multiple offers. NAR reports sellers are seeing an average of 5 offers, and these offers are competitive ones. Shawn Telford, Chief Appraiser at CoreLogic, said in a recent interview:

The frequency of buyers being willing to pay more than the market data supports is increasing.

This confirms buyers are ready and willing to enter bidding wars for your home. Receiving several offers on your house means you can select the one that makes the most sense for your situation and financial well-being.

3. When Supply Is Low, Your House Is in the Spotlight

One of the most significant challenges for motivated buyers is the current inventory of homes for sale, which while improving, remains at near-record lows. As NAR details:

Total housing inventory at the end of May amounted to 1.23 million units, up 7.0% from April’s inventory and down 20.6% from one year ago (1.55 million). Unsold inventory sits at a 2.5-month supply at the present sales pace, marginally up from April’s 2.4-month supply but down from 4.6-months in May 2020.

There are signs, however, that more homes are coming to market. Odeta Kushi, Deputy Chief Economist at First American, notes:

It looks like existing inventory is starting to inch up, which is good news for a housing market parched for more supply.

If you're looking to take advantage of buyer demand and get the most attention for your house, selling now before more listings come to the market might be your best option.

4. If You're Thinking of Moving Up, Now May Be the Time

Over the past 12 months, homeowners have gained a significant amount of wealth through growing equity. In that same period, homeowners have also spent a considerable amount of time in their homes, and many have decided their house doesn't meet their needs.

If you're not happy with your current home, you can leverage that equity to power your move now. Your equity, plus current low mortgage rates, can help you maximize your purchasing power.

But these near-historic low rates won't last forever. Experts forecast interest rates will increase in the coming months. Nadia Evangelou, Senior Economist and Director of Forecasting at NAR, says:

Nevertheless, as the economic outlook for the United States looks brighter for the rest of the year, mortgage rates are expected to rise in the following months.

As interest rates rise, even modestly, it could influence buyer demand and your purchasing power. If you've been waiting for the best time to sell to fuel your move up, you likely won't find more favorable conditions than those we're seeing today.

Bottom Line

With supply challenges, low mortgage rates, and extremely motivated buyers, sellers are well-positioned to take advantage of current market conditions right now. If you're thinking about selling, let's connect today to discuss why it makes sense to list your home sooner rather than later.

There's no denying we're in a sellers' market. With low inventory and high buyer demand, homes today are selling above the asking price at a record rate. According to the latest Realtors Confidence Index Survey from the National Association of Realtors (NAR):

• Homes typically sell within 17 days (compared to 26 days one year ago).
• The average home sold has five offers to pick from.
• 54% of offers are over the asking price.

Because so many buyers are competing for so few homes, bidding wars are driving up home prices. According to an average of leading expert projections, existing home prices are expected to increase by 8.9% this year.

Yet even in today's red-hot sellers' market, it's important to price your house right. While it may be tempting to price your house on the high side to capitalize on this trend, doing so could limit your house's potential.

Why Pricing Your House Right Matters

Here's the thing – a high price tag doesn't mean you're going to cash in big on the sale. While you may be trying to maximize your return, the tradeoff may be steep. A high list price is more likely to deter buyers, sit on the market longer, or require a price drop that can raise questions among prospective buyers.

Instead, focus on setting a price that's fair. Real estate professionals know the value of your home. By pricing your house based on its current condition and similar homes that have recently sold in your area, your agent can help you set a price that's realistic and obtainable – and that's good news for you and for buyers.When you price your house right, you increase your home's visibility, which drives more buyers to your front door. The more buyers that tour your home, the more likely you'll have a multi-offer scenario to create a bidding war. When multiple buyers compete for your house, that sets you up for a bigger win.

Bottom Line

When it comes to pricing your house, working with a local real estate professional is essential. Let's connect so we can optimize your exposure, your timeline, and the return on your investment, too.