Local and national home buyers have begun to hear the refrain that the American housing market may be headed for a major correction, but analysts still tend to disagree on the subject.
Home prices have never been higher, since before the start of the pandemic in 2020, as local and national inventories remain low and competition remains fierce. Median US house prices rose 27% between the second quarter of 2020 and the fourth quarter of 2021, according to Federal Reserve data.
Still, Forbes Magazine said very recently that there is likely no housing bubble and its existence, despite persistent claims, may be exaggerated. This is because the set of circumstances that lead to the mortgage disaster of 2007 has changed, they said.
The home buyer today is likely extremely qualified, according to data from the Urban Institute. At the moment, according to the data, the median FICO for current purchase loans is much higher than the pre-housing crisis levels, for example.
And following the 2007 mortgage meltdown, a host of regulations and restrictions were locked into place. The “Wild West” mortgage market was put to rest.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, was put into place in 2010, and literally stated that its purpose was to “promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
Following 2007, some of America’s largest banks also paid millions of dollars in fines because of their involvement in mortgage frauds.
Thus, a bubble that doesn’t exist can’t burst.
As Florida Atlantic University’s Ken Johnson said in a recent report, “Eventually mortgage rates will slow down home prices, but it hasn’t happened so far,” said Ken H. Johnson, Ph.D., an economist in the school’s College of Business. “We should not see rapid upticks in prices as mortgage rates rise. It’s that kind of exuberance that led to past housing downturns.”
But the report also claimed that a host of US Cities are simply “overpriced,” and buyers should stand down from what he called “irrational” markets. (Pasadena is not one of the cities listed.)
The Federal Reserve hiked interest rates by 0.25 percentage points in mid-March in order to stop rising inflation, but there are few markets in which this has actually begun to happen, according to Johnson, and certainly local prices are nowhere near cooling,
While climbing mortgage rates can pop a “housing bubble” by raising home prices and perhaps increase defaults, the strong seller’s marketplace, especially locally, may not see a dip in either prices or the number of sales for some time, as local realtors have repeatedly pointed out in the last year.