# 3 charts that show that we are not in a housing bubble because apartment prices continue to provide increases…
# 3 charts that show we are not in a housing bubble
As apartment prices continue to provide double-digit increases, some fear we are in a housing bubble like the one in 2006. However, a closer look at market data suggests that 2006 is not similar for three main reasons.
**1. The housing market is not driven by risky mortgage loans. **
Back in 2006, almost everyone could get a loan approval. The Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association is an indicator of the availability of mortgage funds. The higher the index, the easier it is to get a mortgage. MCAIs more than doubled from 2004 (378) to 2006 (869). Today the index stands at 130. As an example of the difference between today and 2006, let’s look at the volume of mortgage that originated when the buyer had less than 620 credit. 3 diagrams showing that it is not a housing bubble. | MyKCMDr. Frank Notft, CoreLogic's chief economist, reiterates this point:
“There are significant differences in today’s price hikes compared to 2005, which was a bubble driven by risky loans and light underwriting. Today loans with high risk characteristics are absent and a careful mortgage underwriting. ”
** 2. Homeowners do not use their homes as ATMs this time. **
During the housing bubble, as prices soared, people refinanced their homes and pulled out large sums of cash. When prices began to fall, it caused many to wallow in a negative capital situation (where their mortgage was higher than the value of the home).
Today homeowners are giving their capital understandings. Affordable equity is the amount available to homeowners before it reaches a combined value ratio of 80% at most (thus still leaving them with at least 20% equity). In 2006, that number was $ 4.6 billion. Today that number stands at over $ 8 billion.
However, the percentage of cash recycling (where the landlord takes at least 5% more than the original mortgage amount) is half of what it was in 2006.
Attached are 3 diagrams that show that this is not a housing bubble
** 3. This time, it's just a matter of supply and demand. **
FOMO (Fear of Missing Out) dominated the housing market that led to the housing bubble in 2006 and increased buyers' demand. At the same time, the housing supply is increasingly due to the fact that many homeowners have put their homes on the market, as evidenced by the supply of over seven months of existing housing stock that was available for sale in 2006. Today, the number is barely two months.
The builders also built excessively during the bubble, but retreated significantly in the next decade. Sam Hatter, VP and Chief Economist, Economic Research and Housing at Freddie Mac, explains that the downside is the main reason for the lack of inventory available today:
** "The main reason for the housing shortage was the long-term decline in the construction of detached houses." **
Attached is a diagram that quantifies Khater's words: 3 diagrams that show that this is not a housing bubble
Today, there are not enough homes to keep up with current demand.
**The Bottom Line**
This market is not similar towards 2006. Bill McBride, author of the prestigious blog Calculated Risk, predicted the latest housing bubble and crash. This is what he has to say about today's housing market:
** ”It is not clear to me at all that things are going to slow down significantly in the near future. In 2005 I had a strong feeling that the hot market would turn around and when it did turn around, things were very ugly. Today, I do not have that sense at all, because all the elements are there. Demand will be high for a while because millennials need homes. Prices will continue to rise for a while because inventory is so low. **
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3 Charts That Show This Isn't a Housing Bubble
With home prices continuing to deliver double-digit increases, some are concerned we're in a housing bubble like the one in 2006. However, a closer look at the market data indicates this is nothing like 2006 for three major reasons.
1. The housing market is not driven by risky mortgage loans.
Back in 2006, nearly everyone could qualify for a loan. The Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers' Association is an indicator of the availability of mortgage money. The higher the index, the easier it is to obtain a mortgage. The MCAI more than doubled from 2004 (378) to 2006 (869). Today, the index stands at 130. As an example of the difference between today and 2006, let's look at the volume of mortgages that originated when a buyer had less than a 620 credit score.3 Charts That Show This Is Not a Housing Bubble | MyKCMDr. Frank Nothaft, Chief Economist for CoreLogic, reiterates this point:
“There are marked differences in today's run up in prices compared to 2005, which was a bubble fueled by risky loans and lenient underwriting. Today, loans with high-risk features are absent and mortgage underwriting is prudent. ”
2. Homeowners aren't using their homes as ATMs this time.
During the housing bubble, as prices skyrocketed, people were refinancing their homes and pulling out large sums of cash. As prices began to fall, that caused many to spiral into a negative equity situation (where their mortgage was higher than the value of the house).
Today, homeowners are letting their equity build. Tappable equity is the amount available for homeowners to access before hitting a maximum 80% combined loan-to-value ratio (thus still leaving them with at least 20% equity). In 2006, that number was $ 4.6 billion. Today, that number stands at over $ 8 billion.
Yet, the percentage of cash-out refinances (where the homeowner takes out at least 5% more than their original mortgage amount) is half of what it was in 2006.3 Charts That Show This Is Not a Housing Bubble | MyKCM
3. This time, it's simply a matter of supply and demand.
FOMO (the Fear Of Missing Out) dominated the housing market leading up to the 2006 housing bubble and drove up buyer demand. Back then, housing supply more than kept up as many homeowners put their houses on the market, as evidenced by the over seven months' supply of existing housing inventory available for sale in 2006. Today, that number is barely two months.
Builders also overbuilt during the bubble but pulled back significantly over the next decade. Sam Khater, VP and Chief Economist, Economic & Housing Research at Freddie Mac, explains that pullback is the major factor in the lack of available inventory today:
"The main driver of the shortfall housing has been the long-term decline in the construction of single-family homes."
Here's a chart that quantifies Khater's remarks: 3 Charts That Show This Isn't a Housing Bubble | MyKCMToday, there are simply not enough homes to keep up with current demand.
Bottom Line
This market is nothing like the run-up to 2006. Bill McBride, the author of the prestigious Calculated Risk blog, predicted the last housing bubble and crash. This is what he has to say about today's housing market:
“It's not clear at all to me that things are going to slow down significantly in the near future. In 2005, I had a strong sense that the hot market would turn and that, when it turned, things would get very ugly. Today, I do not have that sense at all, because all of the fundamentals are there. Demand will be high for a while because Millennials need houses. Prices will keep rising for a while because inventory is so low. ”
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Excellent post. Thanks????
Excellent post Lior, although the prophecy about what is to come is only given to fools, but there is no doubt that the basic data is very different from what it was in 2006