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Home Prices Above Housing Bubble Levels but Market Different

Nov 15, 2017 Chief Economist Danielle Hale said that home prices in the United States are now back where they were 10 years ago right before the wave of foreclosures and the subsequent market crash.

The market is, however, different now. In 2006, mortgages were easy to come by and underwriting standards were lenient, allowing those who could not actually afford to buy a home to do so anyway.

Speaking to the press, Hale said today’s demand was driven by strong household formation. She added: "The limited supply from the lack of construction is also helping keep prices high. And the backdrop is a really strong economy, so all the factors that are driving today's market are sound economic fundamentals."

In 2016, the median home price increased to $236,000, which is 2% higher than in 2006, but there are wide regional differences. In Austin, Texas, home prices are 63% higher than they were in 2006, and they are 54% higher in Denver. Dallas is in third place with an increase of 52%.

A few of the hardest-hit areas during the housing crisis – Tucson, Las Vegas, and Riverside – were still well over 20% below 2006 levels at the end of 2016.

According to Hale, building activity is only around 50% of what it was 10 years ago, and some areas are experiencing a housing shortage. A lot of construction is in the top-end market rather than entry-level, where the need is the highest. Moreover, some builders are not able to get financing as easily as before.

The screening process has become much stricter, with borrowers having to prove they can repay the mortgage.

Hale believes lending standards might be too tight right now, but she concedes that this has played a role in the health of the current market.

Attom Data Solutions recently said that foreclosure activity reached its lowest level in 12 years in April 2017.

Hale added that the astronomical prices seen during the formation of the previous decade’s housing bubble were driven by low-documentation and subprime mortgages. She concluded: "As we compare today's market dynamics to those of a decade ago, it's important to remember rising prices didn't cause the housing crash.”

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