People in the housing industry tend to think of the housing boom a decade ago as “the good old days.” Given that the boom led to a devastating mortgage crisis though, it is questionable whether the country would really want to return to that. In fact, because the market has recovered from the worst devastation of that crisis without returning to the excesses of the bubble, you could argue that the housing market is actually healthier now than it was during the boom. Does that mean these are the good old days?
Why These May Be the Good Old Days for Housing
Some aspects of the housing market have been restored to pre-crisis conditions, and some aspects of it are even healthier. Here are four key monitoring points:
- Delinquencies are down. The job market over the past couple years has put millions of Americans back to work, making mortgage obligations easier to meet. Meanwhile, a wave of the most troubled mortgages has worked its way through the system, while refinancing opportunities and government programs have made many other mortgages more palatable. As a result of all this, the number of serious delinquencies – those home loans 90 days or more past due – has fallen to pre-crisis levels. This is good for current homeowners but also for future ones – the more diligently current borrowers pay off their loans, the easier it will be to get a mortgage in the future.
- Foreclosure inventory is less of a burden. Besides fewer borrowers getting to the point of serious delinquencies, much of the backlog of foreclosed homes has been worked off. The inventory of foreclosed homes is now down to 1.1 percent of all homes, which is also down to pre-crisis levels. This helps support home prices, because it means there are fewer distressed sales going on. One thing to watch out for though – in some markets foreclosures and distressed sales may still be a much bigger presence in the housing market.
- Home price gains are solid, not spectacular. Home prices nationally have recovered about by about 35 percent from the bottom, but are still about 12 percent off their pre-crisis highs. This is something of a sweet spot – it suggests home prices have improved, but have not returned to speculatively high levels. Similarly, the year-over-year national price increase of 5.4 percent is a nice solid gain, but does not reflect the kind of speculative frenzy that led to the housing crisis.
- Mortgage rates are still low. 30-year mortgage rates have fallen by about 2.5 percent since just before the mortgage crisis. This lower level of home loan rates not only means that more people can afford to buy, but it also makes it less likely that today’s loans will become overly burdensome.
One thing that could ruin all this is complacency. When things are going well, lending standards get lowered, and regulation gets relaxed. If things seem too good for the market, prospective home buyers become more anxious to get in at any price and existing home owners start to view home equity as an ever-growing piggy bank.
It’s good that the worst problems of the housing crisis are gone, but it would be best if some of the cautiousness that resulted remained.