Over the past couple years, the Bay Area from San Ramon to Danville to Walnut Creek through Pleasant Hill and Martinez have seen housing prices continually rise. Many people keep raising concerns about another housing bubble. People keep staying on the sideline worried that the market is bound to go down in the near future. The memories of 2007-2009 is still fresh in many people’s minds. However, things are vastly different and we are not in a housing bubble.
Unlike the prior housing slump, we are not dealing with the same mortgage market. In the mid-2000s, we saw many homes bought with little to no downpayment. In fact, people would often inflate their income with no documentation, 100% financing. This is long gone. The last few years have seen all financing done with at least 20% financing for almost all purchases. With the appreciation over the past several years and the downpayment, homes have substantial cushions preventing a repeat of the housing bubble.
As the laws of supply and demand dictate, housing prices will continue to go up so long as inventory stays low. The housing inventory has not only stayed low but it shows no signs of improving. In fact, the beginning of 2018 has demonstrated that inventory is actually lower than a year ago. Without enough houses on the market for current buyers, housing prices will go up and the situation will come nowhere near the prior slump.
Beyond the housing signals, other financial indicators are very positive too. The unemployment rate in the Bay Area continues to remain at or below 4%. In fact, many employers are having trouble finding quality employees. As a result, salaries are going up and more individuals continue to be qualified for housing.
A recent article in Arch MI’s latest Housing and Mortgage Market Review report further supports our above analysis. It states, “Home prices in the U.S. currently do not appear to be overvalued based on the historical relationship between home prices and incomes.” Before the housing crisis, U.S. home prices were 22% overvalued, then fell to 12% undervalued in 2012. Arch MI estimates that home prices are now 10 to 15% undervalued because mortgage rates remain near record lows.
If you have questions about the local housing market or want to look towards purchasing a home, contact the Laura Wucher Team at (925) 595-8047.