Are we in a housing bubble?

Market conditions suggest that Portland is better positioned than other major cities on the West Coast.

As you can see, Portland is still the least expensive major market on the West Coast. And the Home Affordability Index (HAI)—calculated by the National Association of Realtors (NAR)— is also lower than any city besides Sacramento.

A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. The higher the value, the more affordable the area.

An index of 80 means the average family only earns 80% of the income necessary to qualify to purchase a median-priced home with 20% down.  

An index of 120 means the average family earns 120% of the income necessary to qualify to purchase a median-priced home with 20% down.

Consideration also needs to be given to the lending environment in 2008 versus today. In 2008, we had just gone through several years of very relaxed loan guidelines. We had pay option ARMs, negative amortization, stated income loans, 80/20 loans, etc. Almost anyone could qualify to purchase a home!

In today’s environment, Alt-A or subprime loans only represent a tiny fraction of all loans closed.  The vast majority of borrowers are qualifying only after a rigorous underwriting process where their ability to repay the loan has been reviewed in great detail.

Lastly, appreciation is now returning to the long-term trend line as noted in the graph below.***

As my Dad likes to say, “If I were smart, I’d be rich!”…and I’m not rich. So draw your conclusions.  But, the majority of the data suggests that we are in a healthy housing market. The slowdown over this winter is a good sign as well. I think we are likely to continue seeing increases in home values, just not at the unsustainable rates we saw over the past few years.

*https://www.kiplinger.com/tool/real-estate/T010-S003-home-prices-in-100-top-u-s-metro-areas/index.php

**https://www.nar.realtor/sites/default/files/reports/2017/embargoes/2017-q1-metro-home-prices/metro-affordability-2016-existing-single-family-2017-05-15.pdf

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