United States Prices in Housing Continue to Go Up

Have we learned nothing from the Great Recession? Housing appears to be headed down the same road it was in 2006 when “the bubble” burst. I owned a flourishing wholesale mortgage firm for 7 years and wrote loans for over 13 years total. After closing my company in 2009 after seeing that there was no hope in the near future for a turn around and decided to focus on real estate sales only vs doing both I said to myself, “on the bright side we [as a country] have at least learned our lesson”, or so I thought. 

I recently read an article in Business Insider called “Something strange is Happening in Housing“, and although most of what was in the article came as no surprise to me because our real estate market here in Charleston SC has been on fire for the last three years more or less, I was however alarmed to read there are banks lending 100% again. San Francisco Federal Credit Union announced a new loan program that will allow San Francisco-area borrowers to finance up to 100% of their mortgage – with no requirement for mortgage insurance – on loans up to $2 million. This is insanity! Jumbo loans at 100% financing! Not to mention it’s call “The Poppy Loan”! They claim it’s an acronym that stands for Proud Ownership Purchase Program for You, to me it’s referencing the poppy the seed, the flowering plant where the drug heroin comes from because you’d have to be on drugs to write this loan. It’s 100% financing loans that got us into this mess in the first place. 

Not making borrowers have “skin in the game”, was the entire reason things got completely out of control in the first place. No wonder San Fran has some of the highest housing costs in the entire country. When I started writing mortgages in 1998 the minimum you had to have to buy a house was 10%, and that was with an 80%, and 10% equity line, assuming you had flawless credit. Which is how it should be. 

Putting that aside – how do we explain the meteoric rise in real estate prices when we have a stagnant economy (regardless what the white house wants you to believe) with 2% GDP, and incomes that aren’t commiserate with the cost of homes? The article by Morgan Housel points out, San Francisco prices are up 79.2% since 2009. Atlanta is up 53%. Phoenix, up 47.1%. Denver, 42.6%. Los Angeles, 49.7%. The magnitude of these gains rivals what we saw during the nuttiest portions of the 2000’s bubble.

The only thing that does make since is that it says housing prices are up anywhere from 30-70% from 2009 prices. Well duh, that was the lowest of the low in decades. No surprise there. They’re now just 4.5% off their 2006 bubble highs, according to data from respected Yale economist Robert Shiller (no relation): reports the article

The writer points out his beliefs as to what the culprit is for the unjustified boom in housing prices, and I can’t say as I disagree, because I watched it happen myself. For example in 2013 DR Horton released news of its largest development in the United States, Oyster Point right here in Charleston’s suburban community Mount Pleasant. As I met with clients and the listing agents at the new community we were informed that the builder DR Horton was temporarily freezing contracts and although they claimed it was to “slow down the growth” because it they couldn’t keep up – it’s hard to say. The writer feels the large national builders were intentionally slowing down building to drive up prices and profits.  

Bottom line is, it’s simple economics supply and demand. Mortgage rates were at an all time low for SO long that made housing a little more affordable so people were eager to buy as fast as possible. Home owners who were once struggling and under water were able to refinance and modify their loans and remain in the home. However, weren’t necessarily in a place financially to move because their credit was ruined from the crash so they weren’t selling. Banks had a gluttony of REO properties they were forced to sit on for legals reasons. Who knows if there is any truth to the builders scenario laid out above. Fact is there are many factors in play that have all contributed to the fast rise in real estate prices, but supply and demand will always be the main reason. Nothing other than that.  

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