What’s Preventing Another Housing Market Collapse?

What’s Preventing Another Housing Market Collapse?

Tighter lending standards, more regulations and robust jobs growth are making all the difference


Over the past year, home prices have consistently made double-digit month-over-month and year-over-year gains, exceeding the national pre-recession peak of $196,600. This has put some economists and housing experts on guard since home prices were growing at a similar rate before the recession hit in 2007.

In a report released by realtor.com in connection with the 10th anniversary of the recession, Chief Economist Danielle Hale says it’s important to remember that it was more than booming home prices that caused the economy to go bust: loose lending standards, lackluster job and household growth and an already-weakened economy all played their part as well.

“As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash,” she said. “It was rising prices stoked by subprime and low documentation mortgages, as well as people looking for short-term gains — versus today’s truer market vitality — that created the environment for the crash.”

In the decade since the recession, home prices in 31 of the nation’s 50 largest markets have rebounded, with Austin, Texas leading the way. Home prices have risen a whopping 63 percent since 2007 in the Lone Star state’s capital. Denver and Dallas rounded out the top three with 54-percent and 52-percent gains, respectively.

What’s different?

Hale says the housing market has been able to make such large strides partly because of stricter lending standards and tightened building regulations.

“Lending standards are critical to the health of the market,” she said. “Unlike today, the boom’s under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products, which pushed up home prices without the backing of income and equity.”

Read More via Inman.com

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