WASHINGTON–Is a new mortgage/housing bubble growing and about to burst?
No, according to Lawrence Yun, chief economist with the National Association of REALTORS.
Writing on Forbes.com, Yun acknowledged that “home prices are rising too fast in much of the country,” and he cited Denver, Dallas, San Francisco and Seattle as markets where price gains have been sharpest and are approaching their prior peak.
“The national price gains are not super-spectacular, but are nonetheless rising three to four times as fast as the national average wage growth rate,” wrote Yun. “On top of these trends, overall credit conditions appear to be loosening. The average credit score of mortgages that were approved was 719 in January according Ellie Mae, which is below the 730 to 740 range of most of last year. Consequently, there are increasing discussions about a new bubble – just like the last one fueled by easy credit – that is not sustainable and bound to collapse.”
That forecast, however, wrote Yun, is “misplaced,” because three factors aren’t being considered:
- Even though the credit conditions appear to be easing somewhat, the move is from overly stringent conditions to not-so overly stringent conditions. “It is a far-fetched view to imply the current mortgage approval process in any way resembles the loosey-goosey, easy subprime mortgage access conditions of a decade ago.”
- Even though home prices are climbing far above people’s income, exceptionally low mortgage rates have permitted people to buy a home without overstretching their budget.
- The months’ supply of inventory – measuring how many months it would take to exhaust all inventory at the current sales pace – now stands at around four-to-five months. While that is similar to the lead up to the housing crisis, it isn’t the result of easy credit but instead a lack of supply.
“In other words, we are not in a housing market bubble in terms of an inevitable impending home price crash,” Yun wrote on Forbes.com. “Rather, we are facing an above-normal home price growth trend, which admittedly is unhealthy on several levels, because of the simple economic law of insufficient supply. We need more homebuilding.”