The Economist June 19, 2021 pp68-69 |Finance & economics| Housing in America| “A prettier picture” “The home-buying boom is not as mad as it may appear”
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Even in Bend, Oregon housing prices have surged from a year earlier with an example cited as a 44% increase to $1.25m for a three-bedroom house making the price per square foot higher than “Queens and most of Washington D.C.” Overall prices are up “13% on the year, the biggest jump since before the 2007-09 financial crisis.” Inventories of resale homes are very low and this is having the effect of pushing up prices 1.7% (A Record). The competition for that limited inventory of resale homes is fierce with Redfin reporting that 63% of buyers have bid for a home sight unseen.
Are we likely to see a housing financial crisis similar to 2007-09?
Compared to the 2007-09 era mortgage lending hurdles are much more conservative. As a caveat of the pandemic work-from-home phenomenon, some lenders have reportedly been “calling up workplaces to ensure that employees relocating out of the big, high cost-of-living cities will be allowed to work remotely indefinitely.” Another segment helping to define the financial characteristics of the booming market are wealthy buyers adding large second homes.
As a result of these factors, Loan-To-Value (LTV) is high and steady at 83%. Hidden in the high LTV are three groups of potential buyers; the haves, the have nots and the left out. Forty percent of new owners are buying with a down payment of 20% or more (the haves) while over half are buying with a down payment of less than 10% (the have nots). Not obvious, but published elsewhere, many potential homebuyers are left out because they are unable to compile the down payment needed for their credit-rating. As a result successful buyers are more credit-worthy with 1.4% categorized as subprime borrowers (credit score<620) compared with 12.5% during 2004-07 and 60% as very good borrowers (credit score>760) in 2019 compared with only 25% during 2004-07.
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