Even though CoreLogic’s National home price index as of October 2017, got to the same level it was at the prior peak in April of 2006, once you account for inflation over the ensuing 11.5 years, values are still 18% below where they were” Nothaft said. CoreLogic found in comparing 380 Metro areas that in January 2000 6% were overvalued while 87% were at value. But by November 2006, 67% were overvalued and 32% were at value. At the bottom of the market in March 2011, 7% were overvalued, 42% were at value and 52% were undervalued. As of December 2017, there was a more even distribution among the three groups:33% overvalued, 35% at value and 32% undervalued.
Speculative overbuilding, along with property flippers obtaining mortgages under false pretenses (like applying as an owner-occupant, rather than an investor) helped inflate the mid-2000s housing bubble, said Fannie Mae Chief Economist Doug Duncan. While recession in the near term seems unlikely, Duncan is concerned about whether the Federal Reserve can manage a “soft” landing” of the economy.
Since the start of the year rates for the 30 year fixed loan have increased 50 basis points to 4.45% for the week ended March 22. If rates of mortgages rise, then that erodes affordability further in those markets that have had very rapid price growth and those markets that have very high house prices,” said Nothaft. That will keep the prices from going up.
Rick Sharga, of Carrington Mortgage, says, It’s interesting to watch the dynamics of the market. What we see is prices rise, sales activity slows down, prices weaken and then sales pick back up again,” While it’s true that certain housing markets are overheated, it doesn’t mean necessarily that tomorrow or next week, or next month or even next year prices of homes are going to crash.
As housing demand continues outpacing supply, tight inventory is plaguing potential buyers and putting upward pressure on home prices. Home sales declined 7.9% year over year n January, and the number of homes for sale fell 14.4%, the greatest year over year decline in 28 month, according to Redfin. About 19.2% of homes sold above the asking price, up from 18.7% from the previous year. All the while home values rose 7.8%, Many buyers are concerned about interest rates, but the biggest driver of this market is inventory, not rates.