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    5 Simple Graphs Proving This Is NOT Like the Last Time

    5 Simple Graphs Proving This Is NOT Like the Last Time With all of the volatility in the stock market and uncertainty about...

    • Juan Murray
    • June 13th, 2019
    • 4 min read

    5 Simple Graphs Proving This Is NOT Like the Last Time

    With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:

         | "With people having PTSD from the last time, they're still afraid of buying at the wrong time."

    There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show dramatic differences.

    1. Mortgage standards are nothing like they were back then.

    During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers' Association releases a Mortgage Credit Availability Index, which is "a summary measure which indicates the availability of mortgage credit at a point in time." The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble. 

    2. Prices are not soaring out of control.

    Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite steady recently, it is nowhere near the rise in prices that preceded the crash.

    There's a stark difference between these two periods of time. Average appreciation is 3.6%, so while current appreciation is higher than the historical norm, it's undoubtedly not accelerating beyond control as it did in the early 2000s.

    3. We don't have a surplus of homes on the market. We have a shortage.

    The months' supply of inventory needed to sustain a healthy real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there's a shortage of inventory, which is causing an acceleration in home values.

    4. Houses became too expensive to buy.

    The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased, and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here's a graph showing that difference:

    5. People are equity rich, not tapped out.

    In the run-up to the housing bubble, homeowners were using their homes as a personal ATM. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the previous three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion less than before:

    During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was higher than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can't happen today.

    Bottom Line

    If you're concerned we're making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.

     

     Courtesy of Simplifying the Market 

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    About the author

    Juan Murray

    (617) 721-0961
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    Juan got his start in the residential real estate market in 1994 and has never looked back. His mission is to provide excellence to his clients, and he is always looking for ways to improve the real estate experience for his clients and colleagues in the industry. Early in his real estate career, he worked as the Housing Rehabilitation Director for a national non-profit organization, Neighborhood Assistance Corporation of America (NACA). His goal was to gain more knowledge of the construction and renovation of existing homes in conjunction with working with 1st-time buyers. He effectively managed over 25 residential construction project managers on the East & West coasts while implementing procedures to improve communication between contractors, property owners, and banking representatives. He also developed resources, designed processes, and organized all aspects of real estate property acquisition and renovation. Juan completed a home inspector licensing course on his way to becoming a licensed home inspector. But after completing 30 inspections as an apprentice observer, after crawling under numerous porches and “crawl spaces,” he decided it wasn’t his cup of tea. Juan has always had a sharp eye for market trends and an innate understanding of what his clients need. That’s why, as a top real estate agent in Boston, he is constantly ahead of the curve, anticipating changes in the market and helping his clients manage their real estate goals. His keen intellect, quick wit, and tireless work ethic make him an invaluable partner for anyone looking to buy or sell property in the Boston area (or via his referral partners worldwide). Although Real Estate is a large part of his life, it is not the only part. He loves hanging out with family and friends, being in the kitchen, enjoying great food, anything Apple or Cole Haan, gadgets, great cigars, F1, motorcycles, photography, and traveling (to name a few). He lives with integrity and tries not to take life too seriously.

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    Juan Real Estate Group

    769 Centre St, Suite 209, Jamaica Plain, MA 02130

    769 Centre St, Suite 209, Jamaica Plain, MA 02130

    Call Us:

    (978) 581.0801

    Message Us:

    [email protected]

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