Qualified Home Loans

Are we in a housing bubble? Most likely not.

Since about 2010-2012 the prices of most houses in California have not declined at all. The opposite has happened. Home prices have gone up, and up, and then up more.  Since housing is often cyclical it is natural to expect that might change. Add the uncertainty that 2020 brought and you would be right to be wary. Here are the three main reasons I believe we are not in a bubble.

Housing Affordability

Super low interest rates are driving housing affordability to the best point I have seen in 20 years. When you compare renting a home to buying one, the general expectation is that you are sacrificing a lower monthly payment renting to obtain long term wealth and stability by owning. For the first time that I have ever seen, there is little to no sacrifice. The cost to rent a home is nearly on par with the monthly payments to own it. This is a handy rent vs buy calculator shows whether buying a house makes more financial sense than renting a home.

Government Interference

Another argument that I hear often says that mortgages will become delinquent and spiral housing downward with distressed sales. Many homeowners avoided distress sales of their homes due to government foreclosure moratoriums and forbearance programs. The idea is that as soon as forbearance periods end the effects of the economic downturn will hit housing. However, the data seems to indicate that may be already behind us. Summer 2020 was the peak, and it has been steadily improving since. Additionally, with prices going up sellers have equity and will be less distressed even if they do have a hardship. It’s hard to imagine a glut of short sales driving down the market like in 2008-2010. 

Qualifying for a mortgage is not “crazy-stupid” like before

Take a look at this article and chart. I wish it was tracked back through 2006 to see what “crazy-stupid” looks like on the graph. The key takeaway is that obtaining financing is the most difficult it has been in 5 or 6 years. Buyers chasing houses right now are not paper thin. They have real down payment, real jobs, solid credit, and documented income. This batch of buyers has a vested interest in the homes they are eyeing. 

Contact us if you are interested in a home loan, we can pre-qualify you quickly and get the process started for you.