5 Simple Graphs Proving This Is NOT Like the Last Time

With all the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:

“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”

There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.

1. Mortgage standards are nothing like they were back then.

During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM


2. Prices are not soaring out of control.

Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.

3. We don’t have a surplus of homes on the market. We have a shortage.

The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

4. Houses became too expensive to buy.

The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

5. People are equity rich, not tapped out.

In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.

Bottom Line

If you’re concerned, we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.

What about Real Estate In Ketchikan?
While no one has a crystal ball, we can look to the past to help us see what to expect in the future. This volatility, too, will pass. Although it may feel like the world has closed for business, our humanity brings us back together. As of this writing, St. Patty’s Day, March 17, 2020, Providence Properties remains open for business. We are taking this situation seriously, practicing CDC guidelines, and working remotely whenever possible. With the current situation actively evolving, stay tuned to our Facebook page for the most up-to-the-minute information.

Thanks to technology, information resources, and Providence Properties commitment to innovation and service, no matter our client’s location, we look forward to continuing to serve the local Ketchikan Gateway Borough Real Estate Market. We offer buyer’s market meetings (usually takes 45 minutes to an hour) and can do these meeting through email and on the phone. We have interactive forms and a presence on all major social media outlets, for your convenience. For our sellers, we now offer 3D virtual tours, along with custom marketing strategies, professional equity assessment reports, and a history of over $55,295,500 in sales, to-date. How can we help you reach your real estate goals? At this time, look for our “Actions in Alaska for a successful home sale: Spring Edition.”

Lastly, #KeepCalmAndNeighborOn. Let your humanity shine. Treat others like you want to be treated. Spread kindness, not germs. We are honored at Providence Properties to be your neighbor in Ketchikan. If you or someone you know, need resources, contact our office, for we love the opportunity to help you. Let’s stay in touch.



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