There are many reasons to believe that the market is turning. And there are definitely people out there that believe that is the case. They’re convinced that the housing market bubble is on the horizon. Contrastly, there’s the other side, these real estate experts think that while home prices are going to slow in their increase, they are still, in fact, going to increase. Let’s take a look at both sides.
If you’ve been paying attention to real estate, you may have noticed that mortgage rates have been rising. Albeit slowly, they have been rising. And granted, they have dipped down again a bit, but many experts expect them to keep rising. The projection is 5% interest rate for a 30-year fixed. Take this rise in mortgage rates with the rise in prices and there’s a group of real estate experts that believe we aren’t far from the bubble.
According to the Wall Street Journal, the majority of lenders right now are not banks. 6 out of the top 10 lenders are not banks, and in general, are not as regulated as banks. Which, means they’re more susceptible to collapse if the housing market softens.
One of the main reasons for the crash in 2008 was the sheer volume of mortgage that were backed by Hedge Funds. This created a demand for more mortgages, which led to lenders approving mortgages to risky borrowers. Thus creating a subprime mortgage crisis. All this combined with the many interest-only loans led to the 2008 crash. What’s different now? For one, lenders have tightened up their standards for loans. Further, though the housing market has been a sellers market for a while now, the total number of homes sold is 20% lower than the pre-crash market.
The Trump Tax Reform could have a negative impact on the housing market. This plan raised the standard deduction, eliminating the need to itemize. If mortgage rates continue to rise, they can slow the market down significantly both in new purchases and refinances. Another negative point is that affordable housing is severely hurting. Affordable housing units dropped from 11% in 2010 to 4% in 2016. As far as Colorado is concerned, our stock of affordable rentals fell from 32.4 percent to only 7.5 since 2010. This plummet happened after marijuana became legal.
So is the market turning? As of right now, we don’t believe so. The job market is really strong, according to Zip Recruiter, 2018 ended unemployment fell to its lowest in nearly 50 years! Further, the end of 2018 reported an annual wage growth measuring at 3.2%, the fastest rate in a decade. Given that the job market is pretty stable, lenders have tightened up their requirements, and given that mortgage rates have been both up and down, we don’t feel confident that we’re reaching the housing market bubble, just yet.