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Do We Have A “housing crisis”?

Across the country housing prices have been going up; and in places like California they’ve been going up significantly. In some areas of California prices are higher than they were pre-mortgage crisis. To be clear, they’ve not been going up because of toxic loan programs seen prior to 2008. The reasons for the increase differ from 2008 but it still has many concerned that the growth rate is unstable.

Modern Brown Home

Prices Have Been Going Up For Two Main Reasons

  1. Mortgage rates still remain historically low even though the Fed has raised their short term rates 4 times over the last few years (as mentioned in previous posts the Fed does not set mortgage rates).
  2. There is a housing shortage and most will say this is the biggest reason home values have increased over the last 3-4 years.

The role mortgage rates plays in home values is significant because generally speaking incomes for the middle and below middle class have not really improved all that much over the last twenty years. More and more people are having to depend on low interest rates and low downpayment amounts to be able to afford that first home. Once they get it then they have a good shot at improving their wealth. However that first home is a huge hurdle and mortgage lenders are trying to develop more ways to assist First Time Home Buyers.

People Are Not Moving

One other less important reason is people are not moving as much; and if people don’t move there are less homes for sale. So if mortgage rates are low and home values are up why are some people saying we have a housing crisis?  They’re saying it because the crisis has to do with not enough affordable homes for sale for home buyers to purchase.  It’s not a crisis similar to the mortgage crisis that led to an economic disaster in 2008 and calling it (our current low housing inventory for sale) a crisis is not accurate.  Problem yes; crisis no.

This trend will probably continue as time goes on. Things got a little crazy between 2002 and 2006. People were constantly moving, always trying to make a profit on the home they were selling. That mostly ended with the financial crisis and it appears most homeowners are not as desperate to sell their home so they can make money.

Here Is A Possible Solution

What can we do to solve the low inventory problem?  Will sky high home loan rates solve the problem? Probably not. Builders simply need build more homes however that is easier said than done.  Also people need to start moving again and moving to less populated areas that have plenty of inventory.   Only so many people can live in places like San Diego, Los Angeles and San Francisco so the more people move to these cities the higher the values will go.

Solving The Problem Will Take A Long Time

Solving this problem will take time; not just months but years.  Home values can not go up forever and unless wages go up significantly in 2017 home values will most likely level off over the next 6-18 months.  Also high home values in urban cities have a way of causing some people to move, in search of more affordable housing and that too will cool the hot housing market.

Loan Officer Kevin O'Connor

About The Author

Loan Officer Kevin O'Connor has over 17 years of experience as a Mortgage Loan Originator and is a trusted resource for mortgage education and information. He's licensed by the state of California and the Nationwide Mortgage Licensing System. He has a top rating with the Better Business Bureau, Google, Yelp, and Zillow. You can contact him at 1-800-550-5538. CA DRE #01499872 / NMLS #247447