Housing Prices are NOT Heading for Another Crash

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As home values continue to increase at levels greater than historic norms, some are concerned that we are heading for another crash like the one we experienced ten years ago. We recently explained that the lenient lending standards of the previous decade (which created false demand) no longer exist. But what about prices?

Are prices appreciating at the same rate that they were prior to the crash of 2006-2008? Let’s look at the numbers as reported by Freddie Mac:

Housing Prices are NOT Heading for Another Crash | MyKCM

The levels of appreciation we have experienced over the last four years aren’t anywhere near the levels that were reached in the four years prior to last decade’s crash.

We must also realize that, to a degree, the current run-up in prices is the market trying to catch up after a crash that dramatically dropped prices for five years.

Bottom Line

Prices are appreciating at levels greater than historic norms. However, we are not at the levels that led to the housing bubble and bust.

Will Housing Affordability Be a Challenge in 2017?

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Some industry experts are saying that the housing market may be heading for a slowdown in 2017 based on rising home prices and a jump in mortgage interest rates. One of the data points they use is the Housing Affordability Index, as reported by the National Association of Realtors (NAR).

Here is how NAR defines the index:

“The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.”

Basically, a value of 100 means a family earning the median income earns enough to qualify for a mortgage on a median-priced home, based on the price and mortgage interest rates at the time. Anything above 100 means the family has more than enough to qualify.

The higher the index, the easier it is to afford a home.

Why the concern?

The index has been declining over the last several years as home values increased. Some are concerned that too many buyers could be priced out of the market.

But, wait a minute…

Though the index skyrocketed from 2009 through 2013, we must realize during that time the housing crisis left the market with an overabundance of housing inventory with as many as one out of three listings being a distressed property (foreclosure or short sale). All prices dropped dramatically and distressed properties sold at major discounts. Then, mortgage rates fell like a rock.

The market is recovering, and values are coming back nicely. That has caused the index to fall.

However, let’s remove the crisis years and look at the current index as compared to the index from 1990 – 2008:

Will Housing Affordability Be a Challenge in 2017? | MyKCM

We can see that, even though prices have increased, mortgage rates are still lower than historical averages and have put the index in a better position than every year for the nineteen years before the crash.

Bottom Line

The Housing Affordability Index is in great shape and should not be seen as a challenge to the real estate market’s continued recovery.

Home Shopping

A shop of one’s own; digital storefronts – using your home to feature your product:

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“We like to use our beach house as a showcase for our products,” says Hampshire. “We always say, if we can’t live with our designs, we shouldn’t produce them. Our benchmark is always: would we have this in our own home?” On their Instagram feed you can see their wallpapers, fabrics and other objects in domestic settings, as well as the occasional snap of the Dungeness coastline.

Rural aesthetic: Fforest General Stores.
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 Rural aesthetic: Fforest General Stores. Photograph: James Gardiner

Personal investment and a strong sense of identity are what characterise this new category of online retailer. “They don’t attempt to compete with bigger brands, who can buy in bulk, but instead do their own thing and create inspiring online ‘destinations’ with loyal communities of customers,” says Ellie Tennant. “By sharing photos of their products in their homes on Instagram and Twitter, they offer their customers much more than a bigger high-street brand ever can. Part of their strength is that they are genuine – living, creative lifestyles.”

More information at:

http://www.theguardian.com/lifeandstyle/2015/nov/01/digital-shopfronts-run-from-home