Housing Bubble?

Below is an article from Inman News.  Want to know where OUR market is headed?  Call me for local information 406.270.2396


Is it a housing bubble? Nearly 68% of housing markets are overvalued

| Jun 01, 2022

For weekbubble-g857daef86_1920s now, housing experts and economists have debated whether or not the country is in a housing bubble.

Home prices and mortgage rates have surged, while wages have trailed behind. Within the last year alone, home price growth, which has reached 20.6 percent, has become four times greater than income growth (which is a mere 4.8 percent). That means underlying economic forces in the market, such as incomes, are no longer able to support home prices in many places.

Mark Zandi, a Moody’s Analytics chief economist, told Fortune recently that a housing bubble would require both speculation-driven price growth and overvaluation — and overvaluation has now impacted over half of all U.S. housing markets, even though speculation-driven price growth isn’t at play in the U.S. (this time around).

It is reported that 67.9 percent of U.S. regional housing markets are now “overvalued,” as of the latest available data from March, meaning that incomes in those markets are no longer able to support home prices, according to an analysis provided to Fortune by real estate data firm CoreLogic.

Furthermore, CoreLogic’s market risk assessment of 400 metropolitan statistical areas shows that less than one-quarter (24.5 percent) of markets are “normal,” and only 7.6 percent are “undervalued.”

With mortgage rates now up substantially since the beginning of 2022, and homebuyers showing their inability to keep up with both home prices and those interest rates — as reflected in consistently declining new home sales and existing-home sales — overvalued housing markets may soon face a reckoning.

The pandemic-fueled housing frenzy finally seems to have come to an end, with inventory continuing to rise and more and more sellers resorting to price cuts, according to a recent report from Redfin.

Even though CoreLogic’s forecasts show home prices rising 5.9 percent within the next year, the company told Fortune that some of those overvalued markets do face a higher risk of prices dropping, because underlying market forces can’t support them.

The data analytics company analyzed a number of factors in regional markets in order to predict the likelihood of home prices dropping in those areas including income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates and amount of inventory. CoreLogic then categorized those housing markets into the following price drop risk categories: “very high” (more than 70 percent chance of price drop), “high” (50-70 percent chance), “medium” (40-50 percent chance), “low” (20-40 percent chance) and “very low” (0-20 percent chance).

CoreLogic determined that just four overvalued markets out of 392 markets measured had a “very high” likelihood of facing a price drop: Bend, Oregon; Prescott, Arizona; Lake Havasu City, Arizona; and Bridgeport, Connecticut.

Twenty-two markets analyzed have a “high” chance of facing a price drop and 44 markets fell into the “medium” risk category.

However, other analysts think even more markets across the U.S. are overvalued right now — Moody’s Analytics, for instance, at the beginning of May said 96 percent of the country’s largest 392 markets are overvalued compared to incomes in those markets. The company added that 149 of those overvalued markets are at least 25 percent overvalued.

Zandi ultimately anticipates home price growth in the U.S. to tank from 20 percent to 0 percent on an annual basis. Furthermore, he told Fortune that the country’s most overvalued markets could see home price drops of 5 to 10 percent in the next year.

The following overpriced markets are most likely to see a drop in home prices in the next year, according to Zandi: Boise, Idaho; Colorado Springs, Colorado; Las Vegas, Nevada; Coeur d’Alene, Idaho; Tampa, Florida; Atlanta, Georgia; Fort Collins, Colorado; Sherman, Texas; Jacksonville, Florida; Idaho Falls, Idaho; Lakeland, Florida; Greeley, Colorado; Longview, Washington; Charleston, South Carolina; Albany, New York; Denver, Colorado; Clarksville, Tennessee; Greensboro, North Carolina; and Charlotte, North Carolina.

Email Lillian Dickerson

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Fear of Missing Out in this Market?

FOMOIf you’ve been thinking about selling and hesitating or simply waiting, you may want to start thinking about how you’ll feel if you miss out on the best time to sell your house in a long time. You never know when (or if) conditions will be like this in the real estate market again.

It’s been a sellers’ market for quite some time now, and with rates going up significantly and home prices still historically high, there’s a lot of chatter about whether or not there’s a real estate “bubble” that’s about to pop. In particular, The Federal Reserve Bank of Dallas recently warned about the potential of a housing bubble and how buyers’ “fear of missing out” (FOMO) is making it worse.

On the other hand, a recent survey revealed that home buyers are still hopeful and feel that it will still be a good time to buy a home in the next three months.

That’s despite the fact that even though there have been signs and reports about the market slowing, according to this Realtor Magazine article, as of March sellers have still been:

  • Receiving an average of 5 offers on their home
  • Selling for above list price over 57% of the time
  • And 87% of listing sold in less than a month

Much of that may very well be fueled by buyers’ FOMO, but it can’t and won’t last forever. That’s how the real estate market works—it goes up, then it goes down, and then back up again in cycles. So even if you “miss out” on this moment in history, there will certainly be a time when home values are this high, or even higher.

But will there be such a combination of high values, low inventory, historically low rates, and high demand? And when will it happen? How will you feel if you “miss out” now?

Those are questions you need to ask yourself if you’ve been toying with the idea of selling your house.

The Takeaway:

Don’t be fueled by fear of missing out, but definitely think about how it would affect you if you did, because the market’s still in your favor…for now at least. If you’re going to sell in the next few years, now is as good a time as any to take advantage of the fact that buyers are still hopeful, offers are plentiful and over asking price, and homes are selling quickly.

When was the last time you read a roadmap

I have started curating my own content for social media posts and while researching unusual National Days, I discovered today is National Read a Road Map Day.  When I saw this, it instantly reminded me of traveling in Washington DC with my mom and two of my boys roughly 16 years ago.  We rented a car for a few days and this was well before smart phones giving you directions. My mother the planner went to Triple A loaded up on all the books of things to do and maps of the area.  This was also well before you had to pay for extra luggage on a plane – she had an entire suitcase full of maps and things to do.  My middle son William, successfully navigated us to Mt. Vernon, Williamsburg VA, and back to DC.  I recall how proud he was and how proud my mother was of her grandson.  When I do think of maps, I will always remember William with that boyish smile looking at me while giving me directions and how excited he was when we got to our destination by his direction – “I got us here Mom”.

When was the last time you navigated a trip using a road map or a Thomas Guide?  Where is your next road trip?


Mortgage Interest Rates Are Rising, but You Can Still Get a Great Deal—Here’s How

Mortgage ratesmortgage-interest-great-deal-cover are rising—and fast. According to data from Freddie Mac, the average interest rate for a 30-year fixed-rate mortgage hit 4.16 percent the week ending March 17—the first time rates have exceeded 4 percent since May 2019.

But don’t panic! Rising interest rates don’t have to put your home purchase on hold; you just need the right strategies to get a good deal.

So what, exactly, are those strategies?

recent article from realtor.com outlined strategies buyers can use to score a great deal on their home (even as mortgage interest rates rise!), including:

  • Purchase points for a lower rate. Mortgage rates may be on the rise—but you can still lock in a low rate. Points allow you to pay an upfront fee to lower the interest rate on your mortgage; generally, 1 point will lower your mortgage rate by 0.25 percent—and will cost you 1 percent of the loan. It’s an upfront cost, but it can drive significant savings over the course of the loan—so if you can purchase points to lower your rate, you’ll definitely want to consider it.
  • Target homes that come in under budget. As interest rates rise, your dollar won’t buy you as much house as it did at a lower rate. That’s why, if you want to keep your monthly mortgage payment at an affordable level, you should consider targeted homes that are under your budget.
  • Explore down payment assistance programs. As interest rates rise, you may not be able to get as competitive of a mortgage as you could have when rates were hovering near all-time lows. But you can still find ways to save money on your home purchase—including down payment assistance programs. There are a variety of assistance programs in place (for example, programs for first-time homebuyers and programs for civil servants, like firefighters or teachers)—so it’s definitely worth doing some research to see if there are any programs you qualify for.
  • Zero down payment. Living in a rural area still has some advantages. Depending on the area of Montana and your income level you may qualify for a no down payment loan.  Talk to a local lender about your options and there are many.  This is not just for first time home buyers!

The Takeaway:

Interest rates may be rising, but there are still great deals to be had—so if you’re thinking about buying a home, don’t let the increase in interest rates stop you!