When Will The Real Estate Bubble Pop?

Tuesday June 5, 2018 by The Mettle Group

If you’re one of the millions of Americans who wants to buy a home this year, the constant increases in property values might have you feeling edgy. When you keep getting outbid on homes, you wonder if it’s wise to offer more for the next home you fall in love with.

People who already own homes fret, too. They worry that they’ll sell their current home and then not find a move-up home they can afford.

It can be really unsettling when housing prices rise, which they did in 91 percent of the housing markets tracked by the National Association of Realtors® in the first quarter of 2018*. To fight this feeling, it’s helpful to look objectively at the data behind the 5.7 percent increase in home prices nationally over the past year.

When you understand the factors that make home values rise and fall, you feel more confident about making housing moves when prices are fluctuating.

TWO THINGS INFLUENCE HOME PRICES

Like all products, the prices of homes rise and fall based on supply and demand. When lots of people want to buy and few people want to sell homes, prices rise. When there are more homes for sale than people to buy them, prices fall.

Let’s see what the data tells us about supply and demand for U.S. homes in the first quarter of 2018.

#1 Demand

To buy a home, you need income and for most of us, that means a job . Since the Great Recession, the U.S. has been adding jobs:

Source: Stewart
*The information contained in the article has not been prepared by Fairway Independent Mortgage Corporation and is distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway Independent Mortgage Corporation.

 

Having a job isn’t enough alone. You have to have a good-paying job to afford a home in most places. The data on earnings shows that all those new jobs are forcing employers to compete for talent. Plus, as Baby Boomers exit the job market, there haven’t enough Gen Xers and millennials to take the jobs Boomers vacate. That’s led to increases in earnings.

 Source: Stewart

So now we have more people working and they’re earning more money. As a Utah resident, I’m happy to say job growth has been particularly good in the Western U.S.:

Source: Stewart

Do the people who have the new jobs make enough money to buy a home? The answer is very much influenced by where you live. In Salt Lake City, for example, a family may need more than the average income, based on the US average hourly earnings, to buy the median priced home. When more people there make more than that average income, more people can afford to buy.

 

#2 Supply

There are two kinds of homes for sale in the U.S.: New and existing. The supply of both is tight.

Builders are building enough new homes to keep up with demand, according to real estate data from Stewart. It shows only about one new housing unit is being built for every two jobs being created:

NAR estimates homebuilding activity for all housing types is underperforming in roughly two-thirds of metro areas where it collects market data.

Another way to measure supply it to calculate how long it will take to sell all the homes on the market in a metro area – if home sales continued at the current pace. In a market where there are 100 homes on the market and 25 sell each month, that’s a four-month supply. This is the way NAR measures demand.

The current NAR data points to a shortage of existing homes for sale. The average supply of homes for sale during the first quarter of 2018 was 3.5 months nationally – down from 3.7 months in the first quarter of last year.

Looking at the raw numbers, there were 1.67 million homes for sale in 1Q 2018, down 7.2 percent from the 1.8 million for sale at that point in 2017, NAR says.

Housing Demand is Outstripping Supply

Both the supply and demand data clearly show more people want to (and are able to) buy homes in the current market, but there are fewer homes for them to buy.

While there’s no way to know what will happen tomorrow, in the past, that’s led to home price increases.

Wait, Can People Still Afford Homes?

One problem with rising home prices is that they make it harder for people to afford to buy a home. You might think that’s happening in the current market, but the data say otherwise.

Americans, on average, are actually paying less each month for their full homeownership costs (home loan costs + taxes + insurance) today than they have at any time since 1982.

That’s not a typo. Housing payments really are low compared to what the median household is earning in many cities, according to Stewart’s data**:

 

**The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income

WHAT THIS MEANS FOR YOU

The good news conclusion you can draw from all this data is that demand for homes is real and your mortgage payment may be affordable. The challenge you face is that you must beat out all the other homebuyers who want to buy the same home. That can make it tempting to overextend yourself financially to keep up with other buyers.

When looking at a mortgage, it’s important to weigh how it could stress you financially or impact your other life goals.

Fortunately, I’ve got another strategy that can help set you up for home buying success.

It’s called the 17-Day Guaranteed Close and believe me it will make your offer stand amongst the competition.  We actually guarantee we will have your loan ready to close in 17 days or we’ll pay the seller $250 a day if we are late.

Our clients whom have successfully used this program are ecstatic that they were able to beat out other offers not by paying more, but by being better prepared and by having us guarantee the quick closing.   We would love to help you stand out from the masses as well, contact us today to find out more about the 17 Day Guaranteed Close Program.

17 day guaranteed loan close disclaimer:
Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations may apply. Fairway is not affiliated with any government agencies. Fairway is required to disclose the following license information. Alaska Mortgage Lender License No. AK2289; Arizona Mortgage Banker License No. 0904162; CA: Licensed by the Department of Business Oversight under the Consumer Finance Lenders Law; Loans made or arranged pursuant to a California Finance Lenders Law License #262571; Illinois Residential Mortgage Licensee No. MB. 0005475; Kansas Licensed Mortgage Company. KS License #MC.0001375; MA Mortgage Broker and Lender License #MC2289″; Minnesota: MN-MO- MN-MO-20183136. This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. Section 47.206 (3) and (4); Mississippi Licensed Mortgage Company; Licensed by the New Hampshire Banking Department Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker- NYS Department of Financial Services; OH MBA License #2289; Oregon Mortgage Lender License ML-3791; Rhode Island Licensed Broker & Lender; VA: NMLS ID # 2289; Washington Consumer Loan Company License No. CL-2289

 

Josh Mettle
Area Manager & Sr. Loan OfficerDirector of Physician Lending
385-355-2130 O
801-699-4287 M
eFax 866-574-5371
josh@joshmettle.com
2063 E 3900 S, Salt Lake City, UT 84124
NMLS#219996
fairwayphysicianhomeloans.com

Copyright©2018 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. AZ License #BK-0904162; Licensed by the Department of Business Oversight under the California Financing Law; Loans made or arranged pursuant to a California Financing Law License. CA-DBO 219996; Licensed Nevada Mortgage Lender; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Broker- N.Y.S. Department of Financial Services; Rhode Island Licensed Broker & Lender.   

This entry was posted in Homepage, Mortgage, News.
Copyright©2017 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations may apply. Fairway is not affiliated with any government agencies. Fairway is required to disclose the following license information. Alaska Mortgage Lender License No. AK2289; Arizona Mortgage Banker License No. 0904162; CA: Licensed by the Department of Business Oversight under the Consumer Finance Lenders Law; Loans made or arranged pursuant to a California Finance Lenders Law License #262571; Illinois Residential Mortgage Licensee No. MB. 0005475; Kansas Licensed Mortgage Company. KS License #MC.0001375; MA Mortgage Broker and Lender License #MC2289"; Minnesota: MN-MO- MN-MO-20183136. This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. Section 47.206 (3) and (4); Mississippi Licensed Mortgage Company; Licensed by the New Hampshire Banking Department Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker-NYS Department of Financial Services; OH MBA License #2289; Oregon Mortgage Lender License ML-3791; Rhode Island Licensed Broker & Lender; VA: NMLS ID # 2289; Washington Consumer Loan Company License No. CL-2289.
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