Is there a bubble?

Through the first half of 2018, existing-home sales are down slightly by 2.2%, while new home sales are ticking up 7.4%. Home prices continue to increase by 5%. Distressed property sales have fallen to historic lows, making up only 3% of total sales in recent months. The one area of concern is increasing housing unaffordability, which has still been inching higher. After reaching a cyclical low of a 63% ownership rate in late 2015, the rate increased to 64.4% in the second quarter of 2018 as three million additional households became homeowners this time, bringing the total to 77.9 million. The total number of renter households has remained roughly the same at 43 million for the past three years.

Comparing the current U.S. housing market with its performance in 2007-2008, where sub-prime mortgages dominated, today’s market is more disciplined, driven by common sense underwriting of mortgages, strong U.S. economic indicators, and jobs growth.

Yet even with the increase in mortgage rates and higher home prices, the homeownership rate has still been inching higher. After reaching a cyclical low of a 63% ownership rate in late 2015, the rate increased to 64.4% in the second quarter of 2018 as three million additional households became homeowners this time, bringing the total to 77.9 million. The total number of renter households has remained roughly the same at 43 million for the past three years.

Comparing the current U.S. housing market with its performance in 2007-2008, where sub-prime mortgages dominated, today’s market is more disciplined, driven by common sense underwriting of mortgages, strong U.S. economic indicators, and jobs growth.

Is the US housing market headed for another bubble?

The short answer – No. Although no one can predict the future, the U.S. housing market is far from becoming a bubble. The U.S. housing market is on solid ground, well supported by consistent growth, strong demand, and a business-friendly regulatory environment. The robust U.S. economy and relatively low-interest rates (5% range is still low) create strong drivers for homeownership.

Developers in many regions of the U.S. unable to keep up with demand. In stark contrast to the 2008 bubble, we saw an overheated market with an over-supply of new homes combined with widespread subprime mortgage financing. In this sector or the U.S. housing market, today’s growth has been entirely different with clear developer caution and discipline to not get ahead of themselves with a speculative inventory.

What will drive tomorrow’s housing market?

The fundamental drivers of the appetite for homeownership and investment are job creation, population growth, housing permit issuances, and housing affordability. These four highly-correlated factors create a win-win scenario for development alone.

The lack of supply and the accompanying home prices quickly rising are the sources of market headaches. However, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also is an indicator of no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is addressed.

Hot VS. super hot

The two hottest housing markets, for example, Denver and Seattle. These markets are said to be slowing down, from being super-hot to now just hot without the extra adjective. The months’ supply is less than 2 months in Denver and Seattle, and sales are falling. It is not because the buyers are going away, but because there is not enough inventory, and people are consequently being increasingly priced out.

Home prices in both markets have grown at around 10% for each of the past five years. That is an exceptionally fast price gain. The national job growth rate is 1.6%, and the labor market is very solid in both cities, with a 2.8% job growth rate in Denver and 3.0% in Seattle. The problem is, not enough homes were built or listed for sale to meet the demand. However, if more homes are built and people choose to put their properties on the market to take advantage of this growth, more inventory is introduced, then home prices will not go out of bounds.

These two cities and the U.S. housing market, in general, are benefiting from the country’s exceptional economic performance, due in part to 2018 tax reforms. Many U.S. corporations support the current federal government’s pro-business, predictable regulatory environment, and job-creation mandate. All are propping up the U.S. housing market for the foreseeable future.

Bubble?

The word “bubble” is on many home buyers and investors’ minds, and it is worth laying out why today’s conditions are fundamentally different compared to a decade ago. Back then, lending standards were so loose that they were almost non-existent. By contrast, today’s lending standards are still stringent, or asset-based as evidenced by a mortgage default, and foreclosure rates are at historic lows. On the supply side, there was overbuilding with 2.1 million housing starts during the bubble years. Today, we are just scratching 1.3 million.

The U.S. housing market is benefiting from the country’s exceptional economic performance, due in part to President Donald Trump’s 2018 tax reforms. Many U.S. corporations are supportive of the current federal government’s pro-business, predictable regulatory environment, and job-creation mandate.

Although no one can know the future, the U.S. housing market is far from becoming a bubble. It is easily characterized as the opposite – sustainable, measurable growth based on sound fundamentals. The good news is – all data suggests that the probability of a nationwide home price collapse is not foreseeable future.

Investing and obtaining a mortgage as a NON-U.S. citizen

Now that we explained why we don’t believe there is an impending bubble, now may be the perfect time to invest, and obtaining a U.S. mortgage loan is easier than you may think.
Purchasing a house in the U.S. as a foreign citizen is simple if you plan to pay in cash (or having all the money saved to buy the home in one lump sum). If you’re not in the financial position to purchase a home with cash or find leverage is a better option for you, you’ll need to obtain a mortgage loan to purchase the property. This is where the process becomes tricky. Fortunately, America Mortgages’ primary focus is on the U.S. market, and its only focus is these types of mortgages.

Most U.S.-based mortgage lenders look at a borrower’s U.S. credit history to determine their eligibility for a mortgage loan. As a non-U.S. citizen, you don’t have a U.S. credit report, making it difficult for lenders to analyze the risk of loaning you money to purchase a home. That means your lender will elevate your risk factor as a borrower. This doesn’t have to be the case. Nor do you have to stay up late at night in Asia, calling lenders, brokers, and banks to find someone who will understand your situation.
It may take you longer to find a lender who is willing to work with you, and it may take longer to get approval for your mortgage loan. You might also pay a higher interest rate. We understand the complexity of analyzing risk, calculating foreign income, and alternative sources of acceptable credit verification. We do it all day, every day. It’s not difficult if you know the terrain, and in most cases, we can find a U.S. mortgage loan for every client.

Credit: data points and statistics provided by Forbes, NAR, U.S. housing stats, Aug-Oct 2018.

For more information on mortgage loans in the U.S., please submit your details on our contact page or email America Mortgages at hello@americamortgages.com.

Schedule a call with our U.S. Mortgage Specialist.