Residential home sales are hitting peaks last seen in 2006, just before the bubble burst, but this time mortgages are stricter, down payments are higher, and a tight supply is supporting prices.
The residential real-estate market is on its biggest tear since 2006, just before the housing bubble burst and set off a global recession. Yet in nearly every meaningful way, today’s market is the inverse of the previous boom.
Anthony Lamacchia, a broker and owner of a real-estate company near Boston, entered the industry in 2004. Home buyers were trading up to bigger, more expensive houses after barely a year, he said. Many buyers paid small down payments, or none at all. When housing prices stopped rising, the market collapsed. By 2009, Mr. Lamacchia was working with clients desperate to dump the homes he had just helped them buy.
Now, he said, housing demand in the Boston suburbs is stronger than he has ever seen. Lamacchia Realty reached $1 billion in sales last year for the first time. Buyers have higher credit ratings these days. They are flusher and are putting down more cash up front.
“On $1 million purchases, people are putting down $500,000,” he said. “You didn’t see that before.”
In 2020, sales of previously owned U.S. homes surged to their highest level in 14 years, and many economists forecast sales to rise again this year.
In the mid-2000s, loose mortgage-lending standards enabled borrowers with poor credit histories to purchase homes beyond their means, sometimes with mortgages that required low payments in the early years of the loan. Too much new construction led to an oversupply of houses. Financial firms packaged these risky mortgages as securities and sold them to investors. When more homeowners started defaulting on their mortgages, lenders suffered large losses and the entire financial system froze up.
Many homeowners paid a big price. Between 2006 and 2014, about 9.3 million households went through foreclosure, gave up their home to a lender or sold in a distressed sale, according to a 2015 estimate from the National Association of Realtors.
The current housing boom is far more stable than the last one and poses fewer systemic risks, economists say. A downside: There are more barriers to entry, and it’s more difficult for buyers who aren’t already homeowners to make that first purchase.
Those trying to break into the market for the first time have rarely found it more difficult. U.S. house prices soared 10.8% in the fourth quarter from a year earlier on a seasonally adjusted basis, the biggest annual increase in data going back to 1992, according to the Federal Housing Finance Agency. The median home purchase price climbed above $300,000 last year for the first time. Nearly one in four home buyers between April and June bought houses priced at $500,000 or more.
Less-expensive homes became harder to find. Sales of homes priced at $250,000 and below declined in 2020 from a year earlier, according to NAR.
First-time home buyers are struggling to afford down payments. For many renters who lost jobs in 2020, homeownership is even further out of reach.
The housing market’s biggest near-term concern is rising mortgage interest rates, which recently hit their highest level since July and cooled the market slightly. With bond yields rising as investors anticipate a post-Covid rebound, many economists expect mortgage rates to continue creeping upward this year.
Some of the home sales in the past year were likely sales that would have happened in the next few years but were accelerated due to Covid-19, real-estate agents say. That could augur a slight slowdown in demand going forward. Some people who are currently working from home are also likely waiting for their companies to decide on future remote-work policies. They might opt to stay put if they are required to commute to the office daily in the future.
Economists also caution that the shortage of homes on the market could limit the number of sales this year. Spring is typically the busiest season for home sales, as families aim to move before the start of a new school year.
To keep reading, visit The Wall Street Journal.
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