#Housing bubble cracked

“Lenders are being much more responsible this time around,” said PNC chief economist Gus Faucher, referring to the industry at large.

#Housing bubble cracked

The federal government cracked down on so-called NINJA loans (no income, no job, no assets) after the subprime crisis. “Unlike in ’08 and ‘09, when there was tremendous leverage and bad mortgage underwriting, there is not much leverage and much better mortgage underwriting,” Dimon said.ĭemand for housing was artificially driven up during the last boom by the fact that some people with little or no income were able to get mortgages. (JPM)e CEO Jamie Dimon told lawmakers at a hearing in late May that although there is a “little bit of a bubble in housing prices,” the lending situation is much stronger today.

The other crucial difference between today and the mid-2000s is that borrowing hasn’t gotten out of hand, at least not yet. “It elongates the housing cycle and prevents a boom-bust dynamic.” “This may be a blessing in disguise,” said Markowska of Jefferies, pointing out that home prices may be able to cool off as inventories rise. Instead of paying what they view as unreasonable prices, some prospective home buyers are deciding to wait on the sidelines and rent. “Some buyers are simply being priced out,” said Yun. Now the market is too hot even for homebuilders. Across the U.S., house prices are skyrocketing, bidding wars are the norm and supply is scarcer than ever. Existing home sales declined for four months in a row before inching higher in June.Ī 'Sold' sign sits outside a home under construction in the CastleRock Communities Sunfield residential development in Buda, Texas, U.S., on Wednesday, May 15, 2021.

New home sales unexpectedly declined in June to the weakest pace since April 2020, according to data released Monday, marking the third straight month of declines. The good news is there are signs the housing market is self-correcting as a result of these heady price gains. The median price for an existing home hit a record $363,300 last month, up 23% over the prior 12 months. Meanwhile, existing home prices continued to grow in June, according to the NAR. Home prices spiked by 25.9% in Phoenix, 24.7% in San Diego and 23.4% in Seattle, according to the report. The latest figures mark the biggest annual gain in home prices since the group began tracking the metric more than 30 years ago. Home prices surged by 16.6% in May, accelerating from the 14.8% gain in April, according to data published Tuesday by S&P CoreLogic Case-Shiller Indices. In shortages, prices don’t decline,” said Lawrence Yun, chief economist at the National Association of Realtors. At the current pace, it equates to just 2.6 months of supply, or less than half of the six months viewed as a balanced market. That’s what caused the market to crash,” said Markowska.Īs of the end of June, there were just 1.25 million existing homes for sale. “Ultimately, we ended up with excess supply. At the peak, around 2 million homes were being built per year, compared with just 1.6 million today. Still, today’s supply situation is the opposite of the glut in building 15 years ago: Back then, there was a massive overbuilding problem. Of course, Bank of America acknowledged that “bubbles are notoriously difficult to identify in real time.” They only become obvious in hindsight. Still, the bank told clients in a recent note that a “hard landing is unlikely” this time around. “But the risk of this turning into a bubble is much lower.”Įconomists at Bank of America concede that home prices may correct lower in some markets in the short to medium term. “In some ways this is an even hotter housing market than before the Great Recession,” said Aneta Markowska, chief economist at Jefferies. The other key difference is that banks, home buyers and regulators appear to have learned a painful lesson about the pitfalls of overborrowing. Many homebuyers are dropping out of the market Residential homes in Lithonia, Georgia, U.S., on Tuesday, April 27, 2021.