Major Metros Showing ‘Early Signs’ Of A Housing Bubble

Posted by Patrick Barnard on April 04, 2014 No Comments
Categories : Residential Mortgage

15265_house_bubble Major Metros Showing 'Early Signs' Of A Housing Bubble More than half the homes currently on the market in seven major American metros are currently unaffordable for local residents, forcing them to search for a home on the perimeter, rather than downtown, according to a Zillow analysis of Q4'13 income, mortgage and home value data.

Among the 35 largest metros nationwide, more than half of homes currently listed for sale are considered unaffordable by historical standards: Miami (62.4%); Los Angeles (57.2%); San Diego (55.3%); San Francisco (55.2%); Denver (52.8%); San Jose, Calif. (50.9%); and Portland, Ore. (50.3%).

Zillow reports that nationwide, just one-third of homes (33.6%) are currently unaffordable, and in many metro areas, the majority of homes remain more affordable now than they have been historically for buyers making the area's median income.

But as mortgage interest rates rise along with home values, affordability will worsen, and buyers will need to spend ever-larger shares of their incomes to buy increasingly expensive homes, according to the company.

‘We're not in a bubble yet, but we're beginning to see the early signs of one in some areas," comments Stan Humphries, chief economist of Zillow.

Home buyers making the median income in Los Angeles, San Francisco and San Jose should already expect to pay a larger share of their income today toward a mortgage than during the pre-bubble years. Zillow expects mortgage rates on a 30-year fixed-rate mortgage to reach or exceed 5% by the first quarter of 2015.

Assuming rates at that level and another year of forecast home value growth, Zillow explains that home buyers in San Diego; Riverside, Calif.; Portland; Sacramento, Calif.; and Miami will also soon be paying a larger share of their incomes to their mortgage than they were during the pre-bubble years.

‘As affordability worsens, we're already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on non-traditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options,’ adds Humphries.

The company determined affordability by analyzing the current percentage of an area's median income needed to afford the monthly mortgage payment on a median-priced home and comparing it to the share of income needed to afford a median-priced home in the pre-bubble years between 1985 and 2000. If the share of monthly income currently needed to afford the median-priced home is greater than it was during the pre-bubble years, that home is considered unaffordable for typical buyers, Zillow notes.

Register here to receive our Latest Headlines email newsletter




Leave a Comment