The housing market hits a level not seen since the last bubble

Dated: April 20 2022

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You’d be hard-pressed to find housing economists proclaiming that the ongoing housing boom is nearing a 2008-type bust. In fact, many say the opposite, based on the belief that the demographic wave of millennial first-time homebuyers, elevated wage growth, and limited supply will all continue pushing the market upwards. Every major real estate firm with a publicly available forecast, including CoreLogic and Fannie Mae, and the Panzarella Real Estate Team predicts that home prices will go even higher over the coming year.

That said, the red-hot U.S. housing market is beginning to hit levels not seen since our last housing bubble.

Black Knight, a mortgage technology and data provider, showed an analysis on Friday that finds the typical American household would now have to spend 31% of their monthly income to make a mortgage payment on the average-priced U.S. home. That’s up from 29% just one week earlier, and up from 24% in December. Black Knight’s mortgage-payment-to-income ratio—which averaged 19.9% during the 2010s decade—hasn’t topped 31% since September 2007.

What’s going on? The economic shock caused by soaring mortgage rates over the past few weeks has dramatically increased mortgage payments for new homebuyers.

Back in December, the average 30-year fixed mortgage rate stood at 3.11%. A borrower taking on a $500,000 mortgage at that rate would owe $2,138 per month. Now that the average rate is at 5%, that loan if issued today would cost $2,684 per month. Over the course of the 30-year loan, that’s an additional $196,700.

As of the fourth quarter of 2021, only 3.8% of U.S. disposable personal income was going toward mortgage debt payments. At the height of the 2000s housing bubble, that figure was nearly double at 7.2%. This time around, households’ balance sheets look healthier, and more homeowners have paid off their mortgage altogether. In addition, the shady lending practices of the aughts were regulated out of the market by the 2010 Dodd-Frank Act. Simply put: If a storm does come, homeowners, in theory, should be better positioned to ride it out.

“Based on present evidence, there is no expectation that fallout from a housing correction would be comparable to the 2007–09 global financial crisis in terms of magnitude or macroeconomic gravity. Among other things, household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom,” write the Dallas Fed researchers.

“Higher mortgage rates are the best thing for housing because we are in a savagely unhealthy housing market, and we need to get off these extreme low levels of inventory,” So if your yjonking of selling call the Panzarella Team to list and sell your home today!

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Rosario and Donna Panzarella | Real Estate Agents

Rosario and Donna Panzarella, husband and wife power duo since 2005, are committed and in sync with your real estate needs. Our experience is to your benefit, contact us today to see how we can help y....

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