1. If we look at lending standards based on the Mortgage Credit Availability Index released monthly by the Mortgage Bankers Association,
we can see that, though standards have become more reasonable over the
last few years, they are nowhere near where they were in the early
2. If we look at new construction, we can see that builders are not “over building. ”Average
annual housing starts in the first quarter of this year were not just
below numbers recorded in 2002-2006, they are below starts going all the
way back to 1980
With housing prices appreciating at levels that far exceed historical
norms, some are fearful that the market is heading for another bubble.
To alleviate that fear, we just need to look back at the reasons that
caused the bubble ten years ago.
Last decade, demand for housing
was artificially propped up because mortgage lending standards were way
too lenient. People that were not qualified to purchase were able to
attain a mortgage anyway. Prices began to skyrocket. This increase in
demand caused homebuilders in many markets to overbuild.
the excess in new construction and the flooding of the market with
distressed properties (foreclosures & short sales), caused by the
lack of appropriate lending standards, led to the housing crash.
3. If we look at home prices, most homes haven’t even returned to prices seen a decade ago. Trulia just released a report that explained:
it comes to the value of individual homes, the U.S. housing market has
yet to recover. In fact, just 34.2% of homes nationally have seen their
value surpass their pre-recession peak.”
lending standards are appropriate, new construction is below what is
necessary and home prices haven’t even recovered. It appears fears of a
housing bubble are over-exaggerated.