OT: Why the real estate market is not in a bubble: Q1 2023 update video added to OP

[T2Kplus20]

One thing kyk is right about.....the risk of ARMs is much, much lower now than compared to 2007/2008:

Here's why this housing downturn is nothing like the last one

The housing market has cooled off a bit after an incredibly hot stretch fueled by the pandemic. That doesn't mean it's about to be 2007 all over again.

www.cnbc.com

Not as many risky loans
There are currently 2.5 million adjustable-rate mortgages, or ARMs, outstanding today, or about 8% of active mortgages. That is the lowest volume on record. ARMs can be fixed, usually for terms of five, seven or 10 years.

In 2007, just before the housing market crash, there were 13.1 million ARMs, representing 36% of all mortgages. Back then, the underwriting on those types of loans was sketchy, to say the least, but new regulations following the housing crash changed the rules.

ARMs today are not only underwritten to their fully indexed interest rate, but more than 80% of today’s ARM originations also operate under a fixed rate for the first seven to 10 years.

Today, 1.4 million ARMs are currently facing higher rate resets, so given higher rates, those borrowers will have to make higher monthly payments. That is unquestionably a risk. But, in 2007, about 10 million ARMs were facing higher resets.

Follow-Up:

This is a good sign that banks haven't lowered lending standards like they did during the 2000s (which was being pushed by the government to increase homeownership #'s). Surely prices will come down due to higher interest rates, but the idea of a 2000s-like crash seems farfetched.

 

[ru66]

Sometimes people "kid themselves " .

 

[anon_0k9zlfz6lz9oy]

One thing kyk is right about.....the risk of ARMs is much, much lower now than compared to 2007/2008:

Here's why this housing downturn is nothing like the last one

The housing market has cooled off a bit after an incredibly hot stretch fueled by the pandemic. That doesn't mean it's about to be 2007 all over again.

www.cnbc.com

Not as many risky loans
There are currently 2.5 million adjustable-rate mortgages, or ARMs, outstanding today, or about 8% of active mortgages. That is the lowest volume on record. ARMs can be fixed, usually for terms of five, seven or 10 years.

In 2007, just before the housing market crash, there were 13.1 million ARMs, representing 36% of all mortgages. Back then, the underwriting on those types of loans was sketchy, to say the least, but new regulations following the housing crash changed the rules.

ARMs today are not only underwritten to their fully indexed interest rate, but more than 80% of today’s ARM originations also operate under a fixed rate for the first seven to 10 years.

Today, 1.4 million ARMs are currently facing higher rate resets, so given higher rates, those borrowers will have to make higher monthly payments. That is unquestionably a risk. But, in 2007, about 10 million ARMs were facing higher resets.

There was no reason to be in an ARM and when rates got to 2.75% almost all of them refi’d out into fixed rate 2.75%

 

[anon_0k9zlfz6lz9oy]

Follow-Up:

This is a good sign that banks haven't lowered lending standards like they did during the 2000s (which was being pushed by the government to increase homeownership #'s). Surely prices will come down due to higher interest rates, but the idea of a 2000s-like crash seems farfetched.

Lending standards have been super tight since post GFC. Its why the median credit score for a borrower right now is 776 and the average LTV nationwide is 30% aka 70% equity

 

[T2Kplus20]

Lending standards have been super tight since post GFC. Its why the median credit score for a borrower right now is 776 and the average LTV nationwide is 30% aka 70% equity

With those conditions, the market will be fine.

 

[jtung230]

Lending standards have been super tight since post GFC. Its why the median credit score for a borrower right now is 776 and the average LTV nationwide is 30% aka 70% equity

Not true. Standards are better than 2005-2006, but that’s not saying much. Know someone that bought a beach house with 10% down using a 5/1 arm with a stupid teaser rate. Compared this to when I was looking in 2017, banks required a min of 25% down for a second home.

 

[Knight Shift]

Not true. Standards are better than 2005-2006, but that’s not saying much. Know someone that bought a beach house with 10% down using a 5/1 arm with a stupid teaser rate. Compared this to when I was looking in 2017, banks required a min of 25% down for a second home.

Had to look up GFC! Georgia Fried Chicken!!! Glad I found that one easily.

F acronyms.

 

[T2Kplus20]

Not true. Standards are better than 2005-2006, but that’s not saying much. Know someone that bought a beach house with 10% down using a 5/1 arm with a stupid teaser rate. Compared this to when I was looking in 2017, banks required a min of 25% down for a second home.

The aggregate data cited above >>>>>>>>>>>>> than your one example

D'uh.

 

[jtung230]

Had to look up GFC! Georgia Fried Chicken!!! Glad I found that one easily.

F acronyms.

I’m glad you think acronyms are “fun”

 

[jtung230]

The aggregate data cited above >>>>>>>>>>>>> than your one example

D'uh.

you think people are buying houses with 70% down payment? GTFO more acronyms for @Knight Shift

 

[Morrischiano]

You not willing to wager on this one says all you need to know. Ive merely defined bubble as prices reverting to 2020 prices (even though true bubble definition would be prices go to 2012 prices). I will give you 5 to 1 that doesnt happen up to $10,000. In other words I’ll allow you to wager up to $2,000 to pay $10,000. This would have to happen by 2024 so that you cant keep it open forever as I want my money. You in?

OK I'm intrigued in this proposition.

So you're saying that a bubble threshold is reverting to 2020 prices? The difference between Q1 2022 and Q1 2020. Anything decline less is not a bubble pop, correct?

 

[anon_0k9zlfz6lz9oy]

Not true. Standards are better than 2005-2006, but that’s not saying much. Know someone that bought a beach house with 10% down using a 5/1 arm with a stupid teaser rate. Compared this to when I was looking in 2017, banks required a min of 25% down for a second home.

It is unequivocally true. I just stated a fact, not an opinion. Median credit score of a borrower is 776 (was 788 month prior) and average LTV nationwide is 30%. Those are facts, not opinions.

When did this person buy a beach house with 10% and a 5/1 ARM. I'm calling bullshit.

 

[anon_0k9zlfz6lz9oy]

you think people are buying houses with 70% down payment? GTFO more acronyms for @Knight Shift

They're not. However, the average LTV nationwide aggregate is 30%.

It is also true that the past two years have seen incredible low LTV by historical standards because the only way to win those insane bidding wars was to come in heavy. Anything less than 25% down lacking a proof of funds showing SIGNIFICANT liquid cash on hand for the purposes of waiving an appraisal contingency was cast aside.

 

[anon_0k9zlfz6lz9oy]

OK I'm intrigued in this proposition.

So you're saying that a bubble threshold is reverting to 2020 prices? The difference between Q1 2022 and Q1 2020. Anything decline less is not a bubble pop, correct?

Correct. So if we use an objective metric, the natural one always cited is the case shiller index. March 1 2020 case shiller shows 216.60, March 1 2022 case shiller shows 296.27. So my bet is that prices DO NOT drop by 37% 2024. I'll give you 5 to 1. Down?

 

[jtung230]

It is unequivocally true. I just stated a fact, not an opinion. Median credit score of a borrower is 776 (was 788 month prior) and average LTV nationwide is 30%. Those are facts, not opinions.

When did this person buy a beach house with 10% and a 5/1 ARM. I'm calling bullshit.

Just closed 3 months ago in LBI. I am calling total BS on 30% LTV loans.

 

[T2Kplus20]

It is unequivocally true. I just stated a fact, not an opinion. Median credit score of a borrower is 776 (was 788 month prior) and average LTV nationwide is 30%. Those are facts, not opinions.

When did this person buy a beach house with 10% and a 5/1 ARM. I'm calling bullshit.

Jtung is slow and doesn't understand facts. LOL!

 

[jtung230]

Jtung is slow and doesn't understand facts. LOL!

I am slow but my BS radar still works. Let’s take a poll here if anyone took out or know of anyone that took out a 30% LTV mortgage.

 

[anon_0k9zlfz6lz9oy]

Just closed 3 months ago in LBI. I am calling total BS on 30% LTV loans.

Here you go. Of this some have no mortgage, some at 95% LTV. The nationwide average is 30% LTV

 

[anon_0k9zlfz6lz9oy]

Just closed 3 months ago in LBI. I am calling total BS on 30% LTV loans.

This isnt true unless they found private/hard money lender. Literally not possible due to regulations put in place early 2022 for non primary residence which jacked up A ) min downpayment and B ) points/fees

 

[anon_0k9zlfz6lz9oy]

I am slow but my BS radar still works. Let’s take a poll here if anyone took out or know of anyone that took out a 30% LTV mortgage.

As an agent i havent sold a house in 2 years to a buyer with less than 25% down. Was impossible to win a bidding war without that.

people contend prices inflated due to bidding wars with 50+ offers, the same people i guess make the claim you win bidding wars with 3.5% down LOL

 

[jtung230]

Here you go. Of this some have no mortgage, some at 95% LTV. The nationwide average is 30% LTV

View embedded media

Correct me if I’m wrong. The chart is showing implied equity, not cash equity. In 2005, the same chart would’ve shown a low avg LTV as well.

 

[Rutgers Chris]

Here you go. Of this some have no mortgage, some at 95% LTV. The nationwide average is 30% LTV

View embedded media

Seems like a little bit of semantics. The nationwide average mortgage wouldn’t be 30% LTV, because those with no mortgage wouldn’t really be in that count. What you (the graphic) are saying is more about the equity people have in their home vs the market for mortgages.

 

[jtung230]

As an agent i havent sold a house in 2 years to a buyer with less than 25% down. Was impossible to win a bidding war without that.

people contend prices inflated due to bidding wars with 50+ offers, the same people i guess make the claim you win bidding wars with 3.5% down LOL

As a realtor, you should know that you can stip to a min financing requirement but doesn’t mean you can’t get more. I know people bid all cash but got financing anyway. It just means you can’t back out of the deal due to lack of financing.

 

[T2Kplus20]

Here you go. Of this some have no mortgage, some at 95% LTV. The nationwide average is 30% LTV

View embedded media

Very nice. You win again!

 

[anon_0k9zlfz6lz9oy]

As a realtor, you should know that you can stip to a min financing requirement but doesn’t mean you can’t get more. I know people bid all cash but got financing anyway. It just means you can’t back out of the deal due to lack of financing.

Cash out refi max leverage typically 70% LTV fyi. Are you trying to make the case theres oodles of people who used high leverage last 2 years?

 

[anon_0k9zlfz6lz9oy]

Seems like a little bit of semantics. The nationwide average mortgage wouldn’t be 30% LTV, because those with no mortgage wouldn’t really be in that count. What you (the graphic) are saying is more about the equity people have in their home vs the market for mortgages.

If you own it outright then you have 0% LTV. If you went VA 0% down you have 100% LTV. The average is 30% nationwide. This isnt an opinion

 

[Rutgers Chris]

If you own it outright then you have 0% LTV. If you went VA 0% down you have 100% LTV. The average is 30% nationwide. This isnt an opinion

I get it. Would you know how that 30 compares to the average LTV on a new mortgage this year, quarter, etc? Would guess that number is much higher

 

[jtung230]

Cash out refi max leverage typically 70% LTV fyi. Are you trying to make the case theres oodles of people who used high leverage last 2 years?

This is not cash out financing. The seller doesn’t care what type of financing you get as long as it closes. It just eliminates appraisal risk.

 

[jtung230]

I get it. Would you know how that 30 compares to the average LTV on a new mortgage this year, quarter, etc? Would guess that number is much higher

He doesn’t get that debt level is going up, not down. The only reason LTV is going down is because housing prices are going up, not less debt.

 

[anon_0k9zlfz6lz9oy]

I get it. Would you know how that 30 compares to the average LTV on a new mortgage this year, quarter, etc? Would guess that number is much higher

Cant find data on that however, the buyers of the past year have had median credit scores in excess of 776

 

[anon_0k9zlfz6lz9oy]

This is not cash out financing. The seller doesn’t care what type of financing you get as long as it closes. It just eliminates appraisal risk.

Very very rare that occurs fyi prior to time of sale. At least in NJ. Attorneys

 

[anon_0k9zlfz6lz9oy]

He doesn’t get that debt level is going up, not down. The only reason LTV is going down is because housing prices are going up, not less debt.

Wrong again sir. I bring the facts. I will chart you to death

 

[jtung230]

Wrong again sir. I bring the facts. I will chart you to death

View embedded media

Except the earlier chart you posted already showed what I was saying. I took your chart and provided the summary.

 

[anon_0k9zlfz6lz9oy]

Except the earlier chart you posted already showed what I was saying. I took your chart and provided the summary.

Nope, wrong again. LTV’s havent gone up. Theres been more cash purchases in the past 2 years than any 2 year period before. Need to get that chart and source give me a moment

 

[jtung230]

Nope, wrong again. LTV’s havent gone up. Theres been more cash purchases in the past 2 years than any 2 year period before. Need to get that chart and source give me a moment

I already agreed with you that the lending standards have approved but the idea that avg LTV on mortgages are avg to 30% LTV is bananas. The chart you provided clearly shows the LTV is decreasing simply because prices shot up. But most of those loans started at 70-80% LTV.

 

[jtung230]

Nope, wrong again. LTV’s havent gone up. Theres been more cash purchases in the past 2 years than any 2 year period before. Need to get that chart and source give me a moment

Quick google gave me this for 2019

Average LTV ratio in the U.S. by state 2019 | Statista

The loan-to-value ratios in Kansas, Louisiana and Kentucky amounted to 79 percent in 2019, which means that on average the value of mortgages constituted 79 percent of the value of the residential property in those states.

www.statista.com

 

[jtung230]

Here is another source. This one says almost 50% of the mortgages are over 90% LTV.

https://www.fhfa.gov/DataTools/Downloads/Documents/NATIONAL-MORTGAGE-DATABASE-(NMDB)-AGGREGATE-DATA/National-Statistics-for-New-Residential-Mortgages-in-the-United-States.xlsx

 

[anon_0k9zlfz6lz9oy]

I already agreed with you that the lending standards have approved but the idea that avg LTV on mortgages are avg to 30% LTV is bananas. The chart you provided clearly shows the LTV is decreasing simply because prices shot up. But most of those loans started at 70-80% LTV.

All time high purchases using all cash 🤷‍♂️. But your stuck on a narrative

 

[anon_0k9zlfz6lz9oy]

Here is another source. This one says almost 50% of the mortgages are over 90% LTV.

https://www.fhfa.gov/DataTools/Downloads/Documents/NATIONAL-MORTGAGE-DATABASE-(NMDB)-AGGREGATE-DATA/National-Statistics-for-New-Residential-Mortgages-in-the-United-States.xlsx

Very interesting chart.

1) unfortunately it ends in march 2020 and were talking about the run up from march 2020 to present in this thread.
2) it shows that even 2017-2020 LTV’s got lower.
3) if you bought even in 2020, prices are up roughly 30% since then so even at 90% LTV you are now sitting pretty at about 65% LTV. Example, $100K home, $90K loan. Loan balance now is about $85K and value $130K.
4) this only accounts for those with mortgages, doesnt account for cash purchases
5) people buy the payment and credit scores on this chart are all very high.

 

[fg7321]

Right on cue.....

It looks a lot like a housing bubble. How your local housing market compares to 2007, as told by 4 interactive charts

Among the nation’s largest housing markets, Moody’s Analytics finds 344 are “overvalued” by more than 10%. Back in 2007, 261 markets were “overvalued” by 10% or more.

www.yahoo.com