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.