The Next Housing Crisis?

Casey F.

More and more of my clients are asking me “Are we at the top of the market?”  It’s a good question.  An even better question is why they think I would know any better than any schmo on the street, but we’ll set that aside for the moment.

Last year I wrote an article titled “Home Values – Is the Canary Gasping?”  In it I argued that home values across the country could soon stabilize, although in Silicon Valley we probably had a ways to go.  (See how I used could so as not to be too committal?)

Did Values Rise Last Year?

As it turns out, home values have continued upward, albeit at a slower pace.  In the latest U.S. House Price Index Report published by the Federal Housing Finance Agency (FHFA) we see that home prices rose 5.6% from February 2015 to February 2016.

Meanwhile, the Case-Shiller Home Price Index Report – which is a little more comprehensive than the FHFA report – shows a year-over-year gain for the same time period of 5.3% nationwide.  More importantly, it shows that month-over-month gains are slowing down.

Looking at the same report, however, Business Insider pointed out just yesterday that home pricesare continuing to rise twice as fast as inflation, and that home values in metro areas in the west are still growing at double-digit inflation, or very close to it.

The Bay Area Continues to Shine

All of this ignores local economies, and in the San Francisco Bay Area, our job market is very strong.  There is a question as to whether the region’s infrastructure can keep up with the demand for high-tech workers, but that will only put more pressure on housing prices, especially those close to employment centers.  (See Report from Joint Venture Silicon Valley.)

Anecdotally, the number of listings has increased this year in Santa Clara County, and homes are on the market just a little longer.  We’re still facing multiple offers and bidding wars, but perhaps with a little less frenetic energy.

What it Means to You

What does all of this mean?  Well first you’ll notice I’m using opinions and data from other folks so that I don’t have to make a commitment.  And while the data is mixed, there does seem to be a pretty clear trend, which is that the market is losing heat.  What does that mean for you?

If you are thinking of selling you are in the middle of the hot selling season at what might be the peak (or at least a temporary cooling off) of the market.  If you are thinking of buying but have been discouraged about the bidding wars, take heart.  You will probably have more homes to choose from soon, and less competition for the homes.

For those who are waiting for another crash, however, I have some bad news for you.  There were a number of factors that led to the financial crisis and the housing collapse, but the most important one was what eventually became known as “toxic loans,” or what I called stupid lending.

It’s true that lending guidelines have been loosening up the last three or four years, but the loosening up of credit standards has been very slow, methodical and careful.  Today’s lending standards are not even remotely close to the crazy days before 2008, and the toxic terms that made loans blow up are no longer legal under any circumstances.

So, rather than the current run-up in housing prices being attributable to broader credit availability as it was leading up to the housing crisis, today’s housing price increases are due mostly to improving credit for those who lost homes in the crisis, increasing wages, better savings patterns and less household debt.  In other words, home price increases in the last few years have been driven by good fundamentals.

Will there be another correction?  Yes, of course.

When will it happen?  Who knows?

How far will it correct?  There’s no way to predict, although it is very unlikely to be anywhere near where the 2008 crash was.

How will we know when we’ve reached the peak?  It’s actually pretty easy to pinpoint the month that home prices peak about 8 months or so after it happens.  I’ll let you know.

Current Market Update

Here’s a quick market update from Realtor extraordinaire Cassie Maas:

“In January 2016, we had 790 single family homes on the market in Santa Clara County. At this time, we have 1172 Single Family homes on the market. This represents an increase of 48%, a huge increase, but still very low by historical standards.  I expect it to continue to be a seller’s market for the remainder of the year unless inventory suddenly increases.”

You can reach Cassie at (408) 472-7988 or through

Casey Fleming, Author The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)
408-348-3442 mobile