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
Christy2

Roof Maxx is a Roofing Disrupter

Christy West - Roof Rescue of Wilmington LLC/Roof Maxx
Hardy revised

Preparing Future Leaders Through Simulation

Charles Hardy - UNCW College of Health and Human Services
Robindavisccu1 1011944433

When is the Best Time to Buy a New Home? 

Robin Davis - Corning Credit Union (CCU)

Trending News

Three Startups Mark Growth By Moving Out Of TekMountain

Johanna Cano - Oct 17, 2019

Commercial Real Estate Firm Moves To New Office Space

Cece Nunn - Oct 18, 2019

Student Housing Project Scheduled For 2020 Completion

Johanna Cano - Oct 18, 2019

Downtown Art Gallery Hosts Artist Co-op Concept

Christina Haley O'Neal - Oct 17, 2019

Streamlining Real Estate

Johanna Cano - Oct 18, 2019

In The Current Issue

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...



Info Junkie: Ed Wolverton

President & CEO of Wilmington Downtown Inc., Ed Wolverton shares his top tech and informational tools....

Book On Business

The 2019 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

August 26, 2019 Power Breakfast: A Healthy Sale?
WILMA's Leadership Accelerator
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`