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Further Proof This Isn’t a Housing Bubble

Thursday, March 24, 2016   /   by Matthew Freda

Further Proof This Isn’t a Housing Bubble

Further Proof This Isn’t a Housing Bubble | Simplifying The Market

Further Proof This Isn’t a Housing Bubble






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:


Further Proof This Isn’t a Housing Bubble | Simplifying The Market


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 aForbes 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.






Matthew

Freda



Freda Realty, Inc.

Longwood, FL

(407) 513-4724

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eXp Realty, LLC
Matthew Freda
651 W Warren Ave
Longwood, FL
407-513-4724

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