by realtor.com examined certain red flags that caused the housing
crisis in 2005, and then compared them to today’s real estate market.
Today, we want to concentrate on four of those red flags.
Price to Rent Ratio
Price to Income Ratio
four categories were outside historical norms in 2005. Home prices were
way above normal ratios when compared to both rents and incomes at the
They explained that mortgage transactions as a percentage of all home sales were also at a higher percentage:
credit was one of the main culprits of the housing crisis. Mortgage
lending expanded dramatically as unhealthy housing speculation reached
its peak and was met by the highest level of credit availability as
measured by the Mortgage Bankers Association. The index measures the
overall mortgage credit condition by the share of home sales financed by
mortgages. This metric does not capture credit quality, but it does set
a view of the importance of financing in supporting the housing
House flipping was rampant in 2005. As realtor.com's research points out:
flipping activity is a clear indication of speculation in the real
estate market. A property is considered as a speculative flip if the
property is sold twice within 12 months and with positive profit.
Flipping is a normal part of a healthy housing market. In an inflated
housing market, expectations about short-term profit from pure price
appreciation are very high; therefore, the level of flipping activity
would show evidence of being heightened.”
are the categories with percentages reflecting the unrealistic ratios
& numbers of 2005 as compared to the current market. Remember, a
negative percentage reflects a positive gain for the market.
They say hindsight is 20/20… Today, experts are keeping a close watch on the potential red flags that went unnoticed in 2005.