Real Estate Watch – Cynthia Elizondo
Is Poway Headed for a Housing Bubble?
With housing prices appearing to skyrocket (the 2018 median home price for a home in Poway is a whopping $720,000), the question in everyone’s mind is whether we will see another bubble burst, such as we saw in 2007 and 2008. I understand the concern, but an analysis of the historical data, as well as the social and financial environment make me believe we are not facing a similar housing collapse.
First, the rate of increase in home values is manageable. If we consider the historic average rise of housing prices from 1968 to 2004 of 6.8% year over year (National Association of Realtors), we are actually below this trajectory. In fact, Poway’s median home price increase between 2000 and 2018 averaged closer to 4.7%, going from $315,000 in 2000 to $720,000 today. This is a very healthy rate of increase.
Second, the mortgage industry has changed. Banks are being much more conservative in whom they will lend to. The sub-prime lending practice of the early 2000’s led to people getting mortgages they could not afford. Add to that the number of loans with no down payment, and borrowers really had nothing to lose by defaulting on their loans. These practices have not been used by the mortgage industry for over 10 years.
Finally, homeowners have changed the way they borrow money from the equity in their homes. In 2006, home equity lines of credit were up to $85 billion. That number dropped to only $10 billion in 2010, and has risen to only $14 billion since then (Wall Street Journal). In addition, bankruptcies have fallen by 50% since 2010. In short, we are more responsible with our wealth.
Does this mean housing prices will continue to rise at the same 4.7% rate over the next few years? My prediction is that rising interest rates and a higher housing inventory will keep prices rising, but at a slightly slower pace. And if you believe Harvard professor Teo Nicholas, the next housing bubble won’t occur until at least 2026, so we’re good!
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