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
Aaeaaqaaaaaaaaidaaaajdhiztrkodm0lte2yjetngrkmy1hotrmltawmdvlmwqyztmymw

Entrepreneurs Tap Into Answers With Givitas

Diane Durance - UNCW Center for Innovation and Entrepreneurship
Girardnewkirk headshot 2182174430

Entrepreneurship Drives Social Elevation

Girard Newkirk - Genesis Block
Mikeharrington carolinaretreats 2

Accidental Guest Damages: Take A Deep Breath!

Mike Harrington - Carolina Retreats

Trending News

Thermo Fisher Announces It Will Buy PPD For $17.4B

Vicky Janowski - Apr 15, 2021

Molson Coors Invests In TRU Colors, Forms Partnership

Christina Haley O'Neal - Apr 14, 2021

Chef Serving Up Another New Restaurant To South Front District

Jessica Maurer - Apr 15, 2021

Taking A Closer Look At PPD, Thermo Fisher Deal

Christina Haley O'Neal - Apr 15, 2021

WSJ Reports That PPD In Talks To Sell

Vicky Janowski and Cece Nunn - Apr 14, 2021

In The Current Issue

Pleasure Island Chamber Shaking Things Up

The Pleasure Island chamber recently announced changes to the organization....


Pharmaceutical Pipeline

Alcami Corp. is a Wilmington-headquartered contract development and manufacturing organization (CDMO) with expertise in drug development fro...


Coping With Ongoing Appliance Shortage

An appliance shortage stemming from multiple factors, COVID-19 being the major one, has been going on for the better part of a year and does...

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