4 Simple Graphs Showing Why This Is Not a Housing Bubble
A recent survey revealed that many consumers believe there’s a housing bubble beginning to form. That feeling is understandable, as year-over-year home price appreciation is still in the double digits. However, this market is very different than it was during the housing crash 15 years ago. Here are four key reasons why today is nothing like the last time.
1. 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?
2. Mortgage Standards Were Much More Relaxed During the Boom
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. The Foreclosure Situation Is Nothing Like It Was During the Crash
The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. The Federal Reserve issues a report showing the number of consumers with a new foreclosure notice. Here are the numbers during the crash compared to today:
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.
Rick Sharga, Executive Vice President of RealtyTrac, explains:
“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect.”
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?
4. 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.
Bottom Line
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. If you have specific questions about the current market, click here to call us .
Some Highlights
Be the first to live in this immaculate, turnkey and freshly remodeled cottage with great curb appeal. It is centrally located just a few blocks from Cannery Row, the DLI and Pacific Grove in a great New Monterey neighborhood. This roughly 1189 square feet home has been extensively remodeled with a new roof, new driveway and patio, fresh landscaping and fences, fresh flooring, a new HVAC system, new doors and new windows…The list goes on and on!. It has great natural light with great indoor and outdoor spaces. There are three nice sized bedrooms, 1 spacious remodeled bathroom with dual sinks, a great living room with a gas assisted fireplace, a brand-new kitchen with an attached dining area, new flooring, and fresh paint inside and out. Close to Pacific Grove, the bike trail, Old Town Monterey, the Old Fisherman’s Wharf, and everything else that makes the Monterey Peninsula a great place to live. This is a must see!
Living in New Monterey
with outstanding views of the bay.
If you are looking for both privacy and the convenience of being just a few minutes from downtown Carmel and still close to The Lodge at Pebble Beach, Downtown Monterey, the wineries of Carmel Valley and the rest of the beautiful Monterey Peninsula, you are going to love this private, spacious, light, bright turnkey home that has been freshly remodeled in the Carmel High Meadows neighborhood. Tucked behind a gated and fully fenced nearly 1 acre parcel of land, this 4136 square foot home with over 3500 square feet of brand-new decking takes advantage of extensive ocean views of Carmel Bay, Point Lobos and views of the Fish Ranch, Carmel Valley, and the Santa Lucia Mountains.
full hall bath that is used as a powder room and a laundry room. The main level features a large deck with multiple access points including an accordion door off the living room. It also features what I would call a full outdoor kitchen, an outdoor dining area, a gas fire pit and several other gathering areas. The views from this deck are amazing making it a great place to entertain guests, enjoy sunsets or the beautiful weather this High Meadows location has to offer.
features a hot tub and a gas fireplace and also offers great views.
Are you looking for one of the nicest homes in all of East Garrison? Look no further! This coveted Heritage Savannah model is chocked full of beautiful upgrades and is situated on a premium oversized lot. 
ceilings adorned with crown molding and tall baseboards, large planked floors and a modern but comfortably warm color palette. There is a parlor room and a formal dining room to either side of the wide hallway, which leads to an open concept kitchen and family room with a fireplace.
with really makes this home special. The mudroom is home to an additional refrigerator, custom cabinets with granite counters and a second sink and it conveniently connects the garage to the kitchen area. In addition, the loggia is the perfect spot to take advantage of the milder temperatures outdoors while being sheltered from the wind in the summertime.
level has a nicely appointed laundry room with custom cabinets and tile floors, plus a hall bathroom with dual vanities, and a shower over tub that is tile as well.
If you are a car collector and love to participate in Monterey Car Week, why don’t you store your vehicles in the near perfect year-round weather Monterey has to offer? Well, here is your opportunity to own your very own private and secure luxury car condo situated right in the middle of everything Monterey Car Week has to offer. Adjacent to the Monterey Airport off Hwy 68 and just minutes from Laguna Seca, Carmel and The Lodge at Pebble Beach, your cars will be ready for all Monterey Car Week has to offer. This one-of-a-kind oversized luxury garage condo features 2 large roll up doors and 2 man doors with frosted privacy glass that give you access to 1651 square feet of garage space on the main level. In addition, there is an additional 544 square feet on the mezzanine level, which is perfect for an office, storage or lounge to just hang out in or to gather with friends. You can even run your business out of this space as long as it is approved by the MMP board members!
This luxury space isn’t an just an ordinary garage…These two combined and secure units have had the wall removed that separated them which created the second largest unit in the complex! It features modern polished concrete floors, stylish sheet metal walls, custom matte black painted stairs and rails, two exhaust fans, fully insulated walls and several high windows feeding an abundance of natural light during the day. There is electricity in the unit along with water and is ready for your use it like it is. Or if your prefer to modify your cars, you will likely want to trick out this unit and decorate it exactly how you want it. Either way, it is a perfect place to safely store your cars and show off your memorabilia, not to mention just hang around with friends.
The Monterey Motorsports Park complex features the following amenities:
lack of homes with larger garages on the Monterey Peninsula, this is a perfect solution for car enthusiast that live here and want to own a space to store and work on their collection instead of renting a space or for someone who loves to visit the area and has a second home with little or no garage space. This gives them an opportunity to have their cottage on the beach and their large garage full of their favorite cars to enjoy while they are here.
Talk about a great place to live…The Pacific Grove Beach Tract neighborhood is already one of the most desirable areas in Pacific Grove, CA! Add the fact this home is just 3 blocks from the waterfront, and across the street from the best golf value in Monterey County and perhaps the state, this home has the location part of the equation nailed! 
on this main level. The upper level is home to an office/den with an ocean view and a deck with stairs down to the back yard, which has been beautifully designed with 1500+ square feet of patio space.
Majestic, spacious, private and secure are words I would use to describe this Bay Ridge French chateau perched up high with expansive views of Monterey Bay, the Salinas Valley and the surrounding mountains. Expertly sited on 3.75 acres by local award-winning architect Eric Miller this gated estate boasts over 5700 square feet of living space including 5 bedrooms, 4 full and 2 half bathrooms and an additional 1168 square feet of outdoor patios including a 674 square feet grand terrace. Inside you are treated to dramatic 18’ ceilings with crown molding in the living room and dining room, a soaring 2 story entry with a custom chandelier, a spacious master suite on the main level of the home and tons of natural light bathing the interior. Whether it is an intimate view of the impeccably landscaped grounds, a view of the city lights of Salinas, or the dramatic views of the valley and bay, every room has its own view. This estate is something you must see in person. 
Once you pass through the private gate, you approach the formal entry through a porte cachere. When you walk through the front doors, you are greeted to a fabulous view looking out over the grand terrace to the mountain range on the other side of the valley. There is natural light coming in from 2 stories above! The main level offers almost 3500 square feet of living space and includes everything you need to enjoy this wonderful home. There is a living room with 18’ ceilings and a fireplace, a formal dining room, also with 18’ ceilings, each with fantastic views. The kitchen boasts custom maple cabinets with granite countertops and stainless-steel appliances and the adjacent family room has a fireplace and there is a conveniently placed breakfast nook. Off the family room, there is a set of French doors leading out to a 300 square feet patio, which is perfect for BBQing or enjoying the fantastic weather Bay Ridge has to offer. 
The main level master suite is elegant and spacious at approximately 700 square feet, feels more like a suite at a high-end resort! There is a fireplace with a sitting area, dual walk-in closets, a jetted tub, walk in shower and dual vanities. 