We’re going to review if Metro Detroit is in a Housing Bubble let alone ready to pop. So let’s review the Housing Market Predictions 2022 graph and trends. For in-depth understanding watch the video. I have important information in the video that’s not in the post below.
Start with the video ☝☝☝
Before you can review the graphs below, watch the video as it will provide the back story of what led up to the last crash and why this time is different. The blog post was written to use as a reference point and view the graphs in detail for a better understanding after you watch the video.
Let me start off with, what you see on the news or in media headlines doesn’t represent the Metro Detroit market. So, I’ve laid out a detailed graph to prove my point why this time is nothing like last time. If you do your research and understand the housing market you’ll make great decisions based on facts and protect your investment at the same time. I’ve given you the tools on this website to do just that. Take some time and work through the complete blog post and watch the videos. This should be your 1st stop on your journey, phase 2 is actually looking for a house. Yes, we’re talking the boring numbers, and yet it still represents YOUR MONEY.
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3. Follow the Housing Market Price ~ Trends ~ and mortgage Rates by visiting Metro Detroit Housing Market Prices and Trends
4. Read my blog post in Simplifying Real Estate ~ Far right side pick your categories so you become an expert 👍
1. Mortgage Rates Then and Now
During the last housing boom in 2000, the mortgage rates peaked at 8.7%. Home value still increased and homes were still being sold. If you look at the graph, Mortgage Rates didn’t drop below 5% until 2011 and rose again in 2018 to 4.90%. Mortgage rates didn’t drop below 4% until May 30th, 2019. March 2020 was the first time rates hit the 3.5% and we’ve experienced a 50-year low in mortgage rates due to the pandemic. The Feds were buying up 10-year bonds like crazy and that caused the rates to dip to their lowest in February 2021. The Feds started to slow down their bond-buying and the mortgage rates started to go up to the 3% range in March of 2021.
Feds Shifted from Pandemic Mode to Inflations
In December the Feds announced they were shifting from Pandemic mode and now will start addressing inflation. The Feds stopped propping up 10-year Treasury Bonds and offering a lower bond rate, so investors are staying out of the market until there is a rate increase. Shortly after per the graph above, the great U.S. Treasury Yield acceleration started and Mortgage Rates followed. To track where mortgage rates are going you follow the 10-year treasury yield. The good news is since April 8th the 10-year Treasury Bond percentage increased has slowed down and we’re down bouncing back a forth by a smidge. When you hear the Federal reserve getting aggressive about raising INTEREST Rates, don’t panic. This is the rate at which commercial banks borrow and lend their excess reserves for loans like cars and credit cards. Mortgage Rates are NOT determined by the Federal Reserve Interest Rates.
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During the housing bubble, it was much easier to get a mortgage than it is today. As an example, let’s review the number of mortgages granted to purchasers with credit scores under 620. According to credit.org, a credit score between 550-619 is considered poor. In defining those with a score below 620, they explain:
“Credit agencies consider consumers with credit delinquencies, account rejections, and little credit history as subprime borrowers due to their high credit risk.”
Buyers can still qualify for a mortgage with a credit score that low, but they’re considered riskier borrowers. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the 14 years since.
Mortgage standards are nothing like they were the last time. Purchasers that acquired a mortgage over the last decade are much more qualified. Let’s take a look at what that means going forward.
3. Today, Demand for Homeownership Is Real (Not Artificially Generated)
Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home. Today, purchasers and those refinancing a home face much higher standards from mortgage companies.
Data from the Urban Institute shows the number of risks banks were willing to take on then as compared to now.
There’s always a risk when a bank loans money. However, leading up to the housing crash 15 years ago, lending institutions took on much greater risks in both the person and the mortgage product offered. That led to mass defaults, foreclosures, and falling prices.
Today, the demand for homeownership is real. It’s generated by a re-evaluation of the importance of home due to a worldwide pandemic. Additionally, lending standards are much stricter in the current lending environment. Purchasers can afford the mortgage they’re taking on, so there’s little concern about possible defaults.
The 2 Main Reasons for the Crash 15 Years Ago were driven by Job loss and Lending Practices
Back in 2006, foreclosures flooded the market. That drove down home values dramatically. The two main reasons for the flood of foreclosures were:
1. Many purchasers were not truly qualified for the mortgage they obtained, which led to more homes turning into foreclosures.
There’s no doubt the 2020 and 2021 numbers are impacted by the forbearance program, which was created to help homeowners facing uncertainty during the pandemic. However, there are fewer than 800,000 homeowners left in the program today, and most of those will be able to work out a repayment plan with their banks.
4. Home Appreciation Then and Now
Homeownership has become a major element in achieving the American Dream. A recent report from the National Association of Realtors (NAR) finds that over 86% of buyers agree homeownership is still the American Dream.
Prior to the 1950s, less than half of the country owned their own home. However, after World War II, many returning veterans used the benefits afforded by the GI Bill to purchase a home. Since then, the percentage of homeowners throughout the country has increased to the current rate of 65.5%. That strong desire for homeownership has kept home values appreciating ever since. The graph below tracks home price appreciation since the end of World War II:
The graph shows the only time home values dropped significantly was during the housing boom and bust of 2006-2008. If you look at how prices spiked prior to 2006, it looks a bit like the current spike in prices over the past two years. That may lead some people to be concerned we’re about to see a similar fall in home values as we did when the bubble burst. To help alleviate those worries, let’s look at what happened last time and what’s happening today.
5. Houses Are Not Unaffordable Like They Were During the Housing Boom
The affordability formula has three components: the price of the home, wages earned by the purchaser, and the mortgage rate available at the time. Conventional lending standards say a purchaser should not spend more than 28% of their gross income on their mortgage payment.
Fifteen 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, even after the recent spike, is still well below 6%. That means the average purchaser today pays less of their monthly income toward their mortgage payment than they did back then.
In the latest Affordability Report by ATTOM Data, Chief Product Officer Todd Teta addresses that exact point:
“The average wage earner can still afford the typical home across the U.S., but the financial comfort zone continues shrinking as home prices keep soaring and mortgage rates tick upward.”
Affordability isn’t as strong as it was last year, but it’s much better than it was during the boom. Here’s a chart showing that difference:
If costs were so prohibitive, how did so many homes sell during the housing boom?
6. People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s
Why are there so few foreclosures now? Today, homeowners are equity rich, not tapped out. In the run-up to the housing bubble, some homeowners were using their homes as personal ATM machines. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households 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.
Homeowners, however, have learned their lessons.
Prices have risen nicely over the last few years, leading to over 40% of homes in the country having more than 50% equity. But owners have not been tapping into it like the last time, as evidenced by the fact that national tappable equity has increased to a record $9.9 trillion. With the average home equity now standing at $300,000, what happened last time won’t happen today.
As the latest Homeowner Equity Insights report from CoreLogic explains:
“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”
There will be nowhere near the same number of foreclosures as we saw during the crash. So, what does that mean for the housing market?
7. We Don’t Have a Surplus of Homes on the Market – We Have a Shortage
The supply of inventory needed to sustain a normal 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 price appreciation. As the next graph shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s a shortage of inventory, which is causing the acceleration in home values to continue.
Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a shortage of homes for sale.
Get Your Updates on Home Prices by City and Price Range and Home Inventory Levels 👇👇👇
If your think you’ll be buying a home and will lose money because home prices will go down…think again.
All indications home value will continue to go up BUT at a normal pace, not this insanity we’ve seen over the past 2 years. You want to buy a home when the home prices are more in line with a normal housing market, not this hot competitive mess we’ve seen in the past 2 years. History has shown us mortgage rates will always go down and you can always refinance, home prices won’t. If you holding back because you’re afraid the value of your new home will go down and you’ll lose money, based on the housing inventory levels still in the negative range….home prices will still go up.
How will the Increase in Mortgage Rates Affect the Housing Market?
I’ve done extensive research and predictions, so I would recommend watching the video👉 and reviewing the full blog post if you are looking for future predictions.
We look at what caused the Mortgage Rates to Skyrocket, and how you track where they are going. Also, know the difference between the Federal Reserve and Interest rates vs Mortgage Rates and the correlation with the 10-year treasury yield. For updates review Mortgage Rates ~ Monday Updates to review the full blog post and all graphs and trends on my website. Updated Videos will be posted on social media at #TeamTagItSold.
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Bottom Line Housing Market Predictions 2022: Are we in a Housing Bubble Ready to Pop? ~ I just don’t see it and here’s why.
I’ve been in business for 22 years and I’ve seen the strangest market shifts over the years. As you can tell, yes I’m a numbers geek all day long. I always start with the money. Here is the great news! We are just coming out of the worse medical emergency we’ve seen in a hundred years. The government propped up the economy and provided a safety net. The major reason for the housing crash 15 years ago was a tsunami of foreclosures. With much stricter mortgage standards and a historic level of homeowner equity, the fear of massive foreclosures impacting today’s market is not realistic. All this means we are moving to a more normal market and if you look at the mortgage trends adjustment and moving to another. As you can see by the Freddie Mac Trends from 2000 we are just moving to a normal Mortgage market…FINALLY! If you’re worried that we’re making the same mistakes that led to the housing crash, the graphs above show data and insights to help alleviate your concerns. Call me and let’s discuss your concerns and questions.
Simplifying Real Estate Through Education
As we move forward, it’s been challenging as we navigated through all the changes. Putting your dream of a new home on HOLD shouldn’t be one of them. Now more than ever, knowledge will be your power. Know the Market You’re In and your Negotiation Power. Check out Categories for additional updates regarding the Market | Buying | Selling
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