No Housing Bubble in Sight
Statistically speaking, housing is on
a roll. Year-to-date home sales are up
6. 3 percent and prices in May were
7.9 percent higher than a year earlier.
The trends are expected to stay positive
and are likely to boost business dollar
volume by as much as 15 percent in 2015.
These statistics don’t even include new-home construction, which is growing at
a strong clip as well.
But this rosy picture does raise con-
cerns about a;ordability. After all, wages
are rising by only 2 percent annually and
renters are getting squeezed, having to
endure 4 percent rate hikes while home
prices accelerate more quickly. In addi-
tion, mortgage rates have notched their
highest level of the year, reaching about
4 percent in June, and should continue to
rise well into next year.
Some armchair analysts have suggested that we’re entering a new housing
market bubble. But hard facts suggest
otherwise. Underlying conditions today
are fundamentally di;erent from the
bubble of a decade ago. Back then, credit
was easy to obtain and home sales were
running at more than 8. 5 million a year
(existing and new homes combined).
New-home construction volume topped
2 million annually.
By comparison, credit today is
extremely tight, which has led to an unusually high level of all-cash sales. Home
sales are barely over 5 million and new-home construction is barely scratching
1 million units. Meanwhile, for the past
eight years, total mortgage balances
have fallen. The reasons show what’s
changed from 10 years ago: Home own-
ers are paying their mortgages on time
and few are seeking cash-out refinances.
It’s fair to ask, though, whether at
some point a;ordability problems will
choke o; home buying. That’s possible.
But here’s my thinking about what could
neutralize those fears. After running
various scenarios, I expect home prices
to rise continuously as long as mortgage
rates remain under 6 percent. Early in the
summer, the average rate was 4 percent.
It may rise to 5. 5 percent by the end of
next year. Should mortgage rates cross
the 6 percent mark, maybe two years
down the road, then either home prices
will be flat or other forces will be evident.
Going forward, keep in mind that robust
job creation and meaningful increases
in income levels will help propel home
prices. For now, though, no bubble or
impending crash is in sight.
Lawrence Yun is
NAR chief economist.
The HUD- 1 and Good Faith Estimate are being
replaced with new forms and new timelines
to take e;ect later this year under changes
instituted by the Consumer Financial Protection
Bureau. Here’s the impact that lenders,
surveyed this spring, are expecting.
Source: NAR, May 2015 Mortgage Originators Survey
Index showing continued improvement moving into summer. But inventory shortages and price
increases continued to pose hurdles.
EXISTING-HOME SALES Seasonally adjusted annual rate, which is the actual rate of sales for the month,
multiplied by 12 and adjusted for seasonal sales di;erences. 2014 data reflects final seasonal adjustments.
INVENTORY Number of existing homes on the market at the end of the month.
PRICE National median.
HOW WILL THE CHANGES
2. 29 Million
5. 35 Million
Will delay some
closings and kill
Will have no impact
SUPPLY & DEMAND All trend lines are from May 2014 to May 2015.