Further Proof This Isn’t a Housing Bubble
People I've met who lived through the Great Depression were taught lessons that they never
forgot in booming economic times. Today many consumers who have just witnessed life in the
Great Recession of 2009-2012 are uncertain about the Real Estate Market in 2016 ! Please read
this post to see why real estate is clearly a sound investment !
Two weeks ago, we posted a blog which explained that current increases in home prices were the result of the well-known concept of supply & demand and should not lead to conversations of a new housing bubble. Today, we want to look at home prices as compared to current incomes.
Here is a graph showing the monthly mortgage payment on a median priced home in the U.S. over the last 25 years:
Mortgage payments are currently well below the historic average over that time period. Purchasers are not overextending themselves to buy a home like they did on the run-up to the housing crash.
Lawrence Yun, the Chief Economist at the National Association of Realtors, recently explained in a Forbes article:
“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. For someone making a 20% down payment, the monthly mortgage payment at today’s mortgage rates would take up 15% of a person’s gross income. During the bubble years, it was reaching 25% of income. The long-term historical average is around 20%. Therefore, a middle-income household does not need to overstretch their budget much if at all to buy a typical home.”
Bottom Line
Due to low interest rates, demand for housing has dramatically increased. This has caused a jump in home prices. However, low interest rates have also allowed the monthly cost of buying a home to remain well below historic norms. We are in a strong housing market, not a housing bubble.
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