Throughout our lives, we have heard the many myths that keep us afraid to eat Pop Rocks and drink Coke at the same time, pump gas for fear of hidden syringes infecting us with a deadly disease, and wake up in a bathtub of ice with a kidney removed. Add to those the myth of the “housing bubble,” and your repertoire of urban legends is complete. According to Barry Habib, an expert in the mortgage industry who has been featured on CNBC, talk of the so-called housing bubble is hogwash. Habib recently spoke in Chicago, when National City Mortgage welcomed him to share his mortgage industry advice to a group gathered at the Knickerbocker Hotel.

“Housing is not tied to mortgage rates,” says Habib, who says the media is ultimately behind the theory that a housing bubble even exists. “Housing is not a stock. If someone sells a house, he still has to buy another house. Houses remain 80 percent occupied.” Habib says it’s common to hear the media push out headlines about a housing bubble. Newsprint, national magazines, and even CNBC have dedicated significant space and airtime to the premise that housing prices
are going to take a hit. Those who believed the rumors may now be sorry. It’s all about the simple rules of inventory: supply and demand. The real determiner of how well the housing industry is fairing is employment. Currently, the job market is strong and favorable. The unemployment rate in Chicago is a mere 5.7 percent, and houses in Illinois are appreciating by 9 percent. Habib says you can expect to see the level of appreciation taper off to a more modest 5 percent to 7 percent from recently higher levels. Habib also notes that even if interest rates were to spike two full percentage points, an unlikely event in any scenario, the average impact to mortgages would be $32 per week after tax considerations (not enough of a deterrent to prevent home buying).

Who cares what people think?
Who cares what people think? As a Realtor, you should. It matters how your buyers perceive the proverbial housing bubble. Habib says buyers tend to get spooked by the idea of purchasing a home because of the incorrect information and ideas set forth by the media. When it comes to buying vs. renting, many people find themselves on the fence at decision time. They don’t need any additional excuses not to buy, particularly myths that have been hyped into a perceived reality. Mark Nash, a Chicago broker and real estate author, agrees there’s no housing bubble. “Are some coastal and resort markets over-heated, yes,” he says. “I don’t feel that markets will collapse. But investors and property owners should be ready for longer market times, diminishing over full-price and multiple offers in over-heated markets. Prices could plateau, and appreciation levels will hover at more historical levels. If you live out of town from where you purchased property on appreciation speculation, I would keep in very close contact with a unbiased professional in the market, daily.” For homeowners and investors who feel they must protect themselves from a potential bubble, Nash offers the following advice, “Look for incentives by builders on completed new construction buildings or homes; this indicates an over-supply of new units. Research days on market or the length of time of property has been on market. If the typical time recently has been 30 days for sold properties and current market times for the majority of sold properties are 60 or more days, the market is softening. Home prices and mortgage rates affect each other. The more interest rates drop, the more buyers can afford to pay for a home. But as rates rise, buyers can afford less of a purchase price. Watch interest rates as an
indictor of deflating prices.”

 

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