Follow Patrick Linkedin Facebook
Email Patrick Email
Financial
Mar 1, 2017

Is The Housing Bubble About To Burst?

Sponsored Content provided by Patrick Stoy - Mortgage Consultant/Owner, Market Consulting Mortgage

A number of important economic indicators are pointing to a looming storm on the horizon for the housing market. Subprime lending is once again on the rise, eerily similar to the market conditions that were present in 2008, and the affordability of mortgages is decreasing.   

These two factors have some industry experts nervously looking for a way to batten down the hatches. Part of the reason for their concern stems from the fact that home buyers in the U.S. now have to use a higher percentage of their income to pay for a mortgage than they have in six years, according to data compiled by Zillow. This amounts to the average home buyer spending 15.8 percent of his or her income to pay for a mortgage, as of the close of the fourth quarter of 2016.

What is troubling is that mortgage interest rates have started to increase, and many forecasts predict there will be up to three more increases this year alone. 

When coupled with the rapid appreciation in the housing market and the overall stagnation in wage growth, the result could be a rapid decline in the affordability of the average mortgage.

Is the sky falling? 

Not exactly, considering the current portion of income that is necessary to purchase a median-priced home is still relatively low, especially in comparison to the years that brought about the latest housing crisis. Even compared to housing market periods that have been characterized as normal - such as from 1985-2000, when it was necessary for an individual to allocate between 20 and 25 percent of income toward a mortgage - the percentage of income required is still relatively low.

An uptick in mortgage interest rates that may seem small or inconsequential on the surface can exert a profound impact over the long-term, however. If mortgage interest rates continue to rise as expected and home values continue increasing at their current pace, it’s likely that mortgage affordability will rapidly decline.

The fact that mortgage payments grew much faster than household incomes did over the past year is another troubling factor. Household incomes grew by just 2.2 percent from the fourth quarter of 2015 to the fourth quarter of 2016, while mortgage payments on a median-priced home grew by 9.9 percent over the same data period.

If home values rise and interest rates continue on an upward trend, it becomes inevitable that some buyers will be outpaced by the appreciation, get frustrated about the higher prices and decreased affordability and hold off on their decision to purchase. 

As affordability drops, it impacts sellers who are looking to move up, as well, since most are in a situation where they will have to finance their next home.

All of this can add up to a perfect storm of economic conditions, in which the housing market stagnates.  When there are no more buyers and the housing market inventory reaches a certain level, home prices suddenly drop substantially and an economic downturn typically corresponds.

There are a number of additional factors that indicate the potential for a housing market slowdown:

  • The mortgage delinquency rate is up 28 basis points from the third quarter of 2016 to the fourth quarter of 2016.
  • Household debt ballooned in 2016 to almost 2008 levels.
  • Mortgage applications are down 28 percent year-over-year, and refinance applications are down 45.9%
For a confidential evaluation about your situation and the options available to you, please contact me at the number below.   

Patrick Stoy (NMLS Numbers 39527 and 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.

Other Posts from Patrick Stoy

Mcm 14jan insight
Ico insights

INSIGHTS

SPONSORS' CONTENT
Dallasromanowski headshotcopy

Why Communication Is Essential to Successful Planning

Dallas Romanowski - Cornerstone Business Advisors
Kellyerola headshot lcflc

7 Signs It May Be Time For Hospice Or Palliative Care

Kelly Erola - Lower Cape Fear LifeCare
Web mcwhorter 0012

Blue Economy Convergence Conversations With Acclaimed Futurist And Author Deborah Westphal

Heather McWhorter - UNCW Center for Innovation and Entrepreneurship

Trending News

Tractor Supply Co. Property In Leland Sells For More Than $5M

Cece Nunn - Oct 19, 2021

County OKs Use Of $1.9M For Affordable Housing Project

Cece Nunn - Oct 18, 2021

Scoops Brings Ice Cream Treats To Burgaw

Jenny Callison - Oct 19, 2021

Clancy & Theys Announces Promotion, Hiring

Staff Reports - Oct 19, 2021

Three Physicians Join NHRMC Physician Group

Staff Reports - Oct 19, 2021

In The Current Issue

Will $500M Development Across The River Sink Or Swim?

Battleship Point would be one of the most expensive single projects ever to be built in the region and has drawn comparisons to another majo...


Health Care Heroes: Health Care Professional

The Health Care Professional category honors any health care providers other than physicians or nurses whose performance is considered exemp...


Social District Could Serve As Business Boost

Wilmington leaders and business owners are hoping to establish their own social district in the downtown central business district (CBD) soo...

Book On Business

The 2021 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

Trying to Grow a Business?
2020 Health Care Heroes
2020 WilmingtonBiz 100