4 Reasons Why Today’s Housing Market is NOT 2006 All Over Again

With home prices rising again this year, some are concerned that we may be repeating the 2006 housing bubble that caused families so much pain when it collapsed. Today’s market is quite different than the bubble market of twelve years ago. There are four key metrics that explain why:

1. HOME PRICES

There is no doubt that home prices have reached 2006 levels in many markets across the country. However, after more than a decade, home prices should be much higher based on inflation alone.

Frank Nothaft is the Chief Economist for CoreLogic (which compiles some of the best data on past, current, and future home prices). Nothaft recently explained:

“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2006, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” (emphasis added)

2. MORTGAGE STANDARDS

Some are concerned that banks are once again easing lending standards to a level similar to the one that helped create the last housing bubble. However, there is proof that today’s standards are nowhere near as lenient as they were leading up to the crash.

The Urban Institute’s Housing Finance Policy Center issues a Housing Credit Availability Index (HCAI). According to the Urban Institute:

“The HCAI measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”

The graph below reveals that standards today are much tighter on a borrower’s credit situation and have all but eliminated the riskiest loan products.

3. MORTGAGE DEBT

Back in 2006, many homeowners mistakenly used their homes as ATMs by withdrawing their equity and spending it with no concern for the ramifications. They overloaded themselves with mortgage debt that they couldn’t (or wouldn’t) repay when prices crashed. That is not occurring today.

The best indicator of mortgage debt is the Federal Reserve Board’s household Debt Service Ratio for mortgages, which calculates mortgage debt as a percentage of disposable personal income.

At the height of the bubble market a decade ago, the ratio stood at 7.21%. That meant over 7% of disposable personal income was being spent on mortgage payments. Today, the ratio stands at 4.48% – the lowest level in 38 years!

4. HOUSING AFFORDABILITY

With both house prices and mortgage rates on the rise, there is concern that many buyers may no longer be able to afford a home. However, when we look at the Housing Affordability Index released by the National Association of Realtors, homes are more affordable now than at any other time since 1985 (except for when prices crashed after the bubble popped in 2008).

Bottom Line

After using four key housing metrics to compare today to 2006, we can see that the current market is not anything like the bubble market.

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Lennar makes voice recognition standard in new homes

 

NEW YORK – May 11, 2018 – Lennar, the nation's largest homebuilder, announced a deal with Amazon that will make voice-activated digital assistants a standard feature in its new homes, as well as other smart devices. Going forward, its new homes will include built-in Wi-Fi, smart locks, doorbells, thermostats, and lights that can be controlled by Amazon's voice-activated digital assistant, Alexa.

"This will be the hallmark of why we buy a new home," says David Kaiserman, president of Lennar Ventures. "It's an important step in the mass adoption of all these technologies."

Every new home from Lennar will come with two Alexa-enabled smart speakers, an Echo Show and an Echo Dot. The builder will also give homebuyers a complimentary visit from an Amazon technician to teach them how to operate everything.

Lennar and Amazon announced Wednesday that they will be opening eight model homes across the country to showcase the technology.

"We want to be able to walk into one of these model homes and see how it all works in a real house, so they can see how much it would simplify their lives," says Nish Lathia, general manager for Amazon Services. "It's super addictive."

Voice assistants have been growing in popularity. About 18 percent of Americans this year use a smart speaker at least once a month, according to eMarketer, a digital marketing firm. Amazon holds the majority of the market share, but Google and Apple hope to change that.

Source: "Amazon's Alexa Will Be Built into All New Homes from Lennar," USA Today (May 9, 2018)

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