I am frequently asked whether I believe there is another housing bubble in Park City, Utah. My experience with my own clients and my gut tell me that things are different today than they were in 2006. Those who finance their property purchases have verifiable income and most chose a down payment of 20-40%. Many of my clients pay cash, intentionally investing 20-100% of the purchase price in cash so they will be able to weather a potential downturn in the economy. You only lose money when you sell and “lock in your losses”. When property owners are not over-leveraged, they do not need to sell under duress.
I just read an article at Inman.com, which provided the hard data to back up my gut.
Why the Housing Bubble in Park City has Room to Expand
- Equity in U.S. homes owned by households is valued at $22 trillion, which is just about back to the bubble-peak in 2006. We owe just under $10 trillion, which is still $1.5 trillion below bubble-peak.
- We have restored our aggregate home equity the hard way, by paying down loans and in some cases, by foreclosure.
- Total home mortgage balances began to grow at the end of 2015 by less than 1% annually. This was the first growth in home mortgages in nine years.
- Today there is about $605 billion outstanding in Jumbo loans, a small fraction of the $2.2 trillion at the peak.
- Grossly misused home equity lines of credit (HELOC) balances are falling, at a pace of $40 billion annually with a remaining balance of $642 billion.
The bottom line is that the Park City real estate market is different today than in 2006. There is certainly a chance that real estate prices may level off or decline in some areas. However, it is unlikely we will see a rash of foreclosures and people walking away from property like we did during the Great Recession. Over the last 10 years both buyers and lenders have taken measures to avoid being over-leveraged.
Source: Lou Barnes, US housing not remotely near debt bubble — credit’s too tight, March 14, 2016, Inman.com.
3 Comments
Humm, well housing prices may seem to rising in some areas. Here in the Coachella Valley, we are experiencing a lack of inventory. Is it driving prices up? No. Home buyers are more demanding in what they seek in terms of desirousness. Home sellers are bringing their coastal notions to the area. What we have is a strange stationary front. Homes get listed overpriced and then fall in price when they don’t sell. Desirous homes that are priced right get sold within a couple days of being placed in MLS or sold within a brokerages coming to market closed circuit.
Mortgages are tied to the money market, and it’s not buying back notes. Qualifications rules have not changed. Now should the Feds start buying back notes, money will become less available in turn drive up mortgage rates that will impact home value. However, it would seem more likely that the qualification rules will change, which will muddy it up.
Be more concerned with how the tax change will impact the secondary home markets as well as markets will accelerating home values. That home valued over $1M is going to take longer when a mortgage is sought. $10K SALT and caps on interest at $750K dampen the party.
Thank you for your comment. I wrote that blog in 2016 and prices have only gone higher in my market.
Thanks Nancy for informative post. I spent a lot of time to learn about real estate investment in Minnesota. House prices is rising in my area in recent time. I think that is a good signal for people like me.