Today's housing market is not a repeat of 2006 | HomesMSP

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With home prices increasing this year – and last year – there are many concerned that we may see a repeat of 2006. Today’s market is a lot different than twelve years ago – yes home prices are increasing however there are other pieces that are not the same. Here are some reasons why this should not be a repeat of 12 years ago.

Here are four differences from 2006:

Home Prices
Mortgage Standards
Mortgage Debt
Housing Affordability

Home prices are about where they were in 2006. However if you add in inflation, home prices should be higher after the past decade. If you account for inflation, prices are lower than they should be.

Mortgage standards are different than they were in 2006. Yes, some guidelines are easing compared to a few years ago, but overall, they are tighter now than in 2006. The overall housing credit availability index is much lower than it was in 2006. Mortgage programs are different now compared to 2006. There were several risky mortgage programs available leading up to 2006 and those have almost all been eliminated. Gone are the 80/20 programs along with most stated income programs. The Urban Land Institute has developed this chart showing credit availability.Mortgage debt is also different from 2006. In the early 2000’s, many homeowners used their homes as ATM’s – taking money out and spending it without thinking about the ramifications. Many were mortgaged to 100% of the homes value. When the market crashed, homeowner’s decided not to pay back their mortgages, many were upside down and owed more than their home was worth. That is not happening today – there are very few mortgages that will go to 100% of the value – VA and USDA’s rural development are the only first mortgages that allow 100% financing.

Housing affordability is better than it has been also! With home prices increasing and interest rates increasing, there is always concern that people won’t be able to afford to purchase homes. But the National Association of Realtors put together a chart that shows home affordability. Right now it’s lower than it has been since the housing bubble in 2006. When you look at the whole picture, it makes sense why we should not repeat 2006. Mortgage programs are different, guidelines are stricter and people are not using their homes as ATM’s as they have in the past. People also remember the past few years and don’t want to repeat them! Home prices are continuing to increase and so are mortgage rates – if you have been thinking about buying a home, now might be the best time!