Date Published: August 24, 2023
The real estate market has been on a real tear for the past 12 years or so. It’s gotten to the point where the mortgage and foreclosure crisis of 2008 (which was actually more like 2007-2011) is perhaps beginning to fade into a distant memory.
But so many people were scarred, damaged and set back for years because of the calamity that drove the entire U.S. (and world) economy to the brink of collapse. So while the memory has faded, it’s hardly been forgotten. Many homebuyers (and especially new home owners) have it in the back of their minds….could it happen again? Might we even be on the verge of another home price collapse?
Looking at the chart above, it’s easy to see why people are concerned. It clearly and dramatically shows the change in median U.S. home price versus median household income over the past 30+ years.
At the tail end of the foreclosure crisis in 2011, housing costs and income fell into a loose equilibrium.
Since then, housing costs have skyrocketed, far exceeding growth in incomes. And while rents have increased along with inflation, rental price growth has been cumulatively about 40% lower the home price growth over that time period.
Alarmists will point out these numbers and direct your attention to the fact that foreclosure filings began to rise in 2022 for the first time in 10 years.
Might all this mean we’re on the verge of another tsunami of foreclosures which will tank the real estate market, and the fortunes of tens of millions of Americans?
The consensus seems to be…no. The foreclosure boom of 12-15 years ago was driven by homeowners abandoning property they had no equity in and who were paying on unaffordable mortgages which they should never have been approved to take out in the first place.
The financial picture of homeowners today is significantly different. Most homeowners have substantial cushions of equity, and lending standards were tightened considerably after the mortgage crisis of 2008. The CFPB’s Ability to Repay / Qualified Mortgage Rule really served to cut down on (or, rather, virtually eliminate) the kinds of predatory loans that in large part were to blame for the foreclosure crisis of yore.
But you know the old saying: what goes up, must come down. At some point, it would be expected that home prices will come down again to meet wage growth.
But at this point, nobody is expecting a cataclysmic event which would suddenly and abruptly bring those closer together. Rather, most “experts” are forecasting that this will be a process that will happen gradually, probably over years.
Rest assured, I’ll be keeping a close eye on it and will do my best to keep you informed. 🙂