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Bubble? What Bubble?

Last week we talked about rent and home values. Orion’s brokers helps home buyers in many areas that are appreciating. And sometimes our brokers are asked, with the increase in home prices the past several years, if real estate prices will continue to increase, or are in danger of collapsing here in Southern California. 

The current market is similar in many respects to the market from 2001 to 2006. The national median home price had increased 47% during that 5-year span. 2012-2017 has seen a 45% climb in median price. Low interest rates and low unemployment numbers are also found in the 2 comparisons. There are, however, very strong factors that support the current increase in prices. 

First, lenders have reverted to historical standards when people qualify for the mortgages they are using to finance their purchases. Long gone are the non-qualifying mortgages that were used to finance millions of homes across the country.   

Second, buyers have a financial stake in their home. The early 2000's housing price bubble was, in part, fueled by the lack of need for down payment. A significant number of purchases across the country were completed with no-money down transactions where buyers would get a 1st and a 2nd mortgage to cover 100% of the purchase price. With none of their own money in the home and suddenly seeing their home is upside down with a large mortgage payment there was no financial risk in walking away. 

Third, the housing crisis and subsequent loss of housing has had an impact on the mindset of the average American including many of our broker’s clients. Some of today’s buyer were young adults who witnessed parents losing their home. 

Fourth, and very importantly, an overwhelming majority of the mortgages being financed in the past several years have been fixed rate mortgages at very low interest rates. Orion has helped thousands of home owners in obtaining financing at a great rate and program over the last several years. This removes future uncertainty for housing costs if a homebuyer hits a rough patch. 

The statistical data between the then and now may be similar, however the underlying factors are extremely different. The strength of our housing market today is qualified well employed buyers purchasing a home for the long term as opposed to underqualified buyers leveraging into properties with the purpose of making money as prices climb.


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