There is no evidence of a housing "bubble" in the United States and housing demand should stay strong for years to come. First, the 77 million baby boomers are approaching the peak home ownership ages of 65-75 (over 83.0 percent versus a national average in 2004 of 69.0 percent). Second, immigrants, a growing share of the U.S. population, tend to buy houses ten years later than people born in the United States of the same income group and family size. Third, credit rates are not likely to go high enough (8.0 percent or more for 30-year fixed rate mortgages) to put a crimp in demand. Despite some areas of concern, overall homeowners' equity is at record levels above $9 trillion. Delinquencies are still less than one percent of mortgages outstanding. And there are a little scenarios of stopping foreclosure or in the even of foreclosures of properties.
For over a decade now, the level of residential activities activity has been surprising analysts, participants, and observers of financial and mortgage markets; those involved in producing new housing and the repair and modernization of existing housing; material and equipment suppliers; and the myriad of other people involved with any aspect of a housing transaction, thus it is inevitable that there are some who tried to stop the foreclosure of properties.
While no one knows how high the homeownership rate could go (it's 96 percent in Singapore, the world's highest rate), many housing experts think that 75 percent is a realistic ceiling, given U.S. demographics and mobility patterns. Moving toward that number would mean many more new houses being built and continued high activity in housing markets for many years to come.
Property ownership rates vary greatly by age group, as well. The lowest value is for households where the head is not yet 25 years old. This group had a rate of 25.2 percent in 2004. There is a sharp increase in the 25-29 year old group to 40.2 percent and a further sharp increase to 57.4 percent in the 30-34 year old group. It continues to increase by age until it peaks in the 65-74 year old group at about 83 percent.
Of course, as more people buy a first home, many longer term homeowners have been moving up to a more expensive home.
The index is a combination of income levels and mortgage rates. It suggests that affordability is a major reason for the pattern of rising homeownership rates since 1995. In the December 9, 2004 release, which showed data as of September 30, the household and nonprofit organizations sector had total assets of a record $56.97 trillion, total liabilities of a record $10.3 trillion, and a record net worth of $46.7 trillion, which is about four times the value of GDP and over five times the value of disposable personal income.
Of course, today consumers have many alternatives to fixed-rate mortgages. As the interest rate on fixed-rate mortgages goes up, more consumers shift to adjustable-rate mortgages (ARM). It implies that than an ARM share above 20 percent or so is associated with rising fixed rates. High levels of housing demand and mortgage activity should continue at least through 2008, but they will probably be slightly lower than the 2003 and 2004 peaks.
The NAR index shows year-over-year changes in the median house price without regard to the mix of homes sold. The Office of Federal Housing Enterprise Oversight (OFHEO) uses data from Fannie Mae and Freddie Mac from sequential mortgages on the same house. An extended negative bubble is a crash" (Kindleberger, 2000, p. 16). A paper by Frank Nothaft (2004) has a useful analysis of many issues related to housing and bubbles.
One indicator of a bubble is a rapid increase in the supply of the asset in question. As of the end of 2004, delinquency rates of 90 days and more were about 2.5 percent for FHA loans and about 1.5 percent for VA loans, compared to about 0.3 percent for conventional mortgages. The final factor in estimating future housing demand that supports the low likelihood of a housing bubble is demographic trends. We have not had a decline in housing prices nationally since the Great Depression of August 1929 to March 1933. We will probably see the amount of existing home sales and single-family housing starts in 2005 become the second best levels ever, trailing only 2004. Also, there should be continued strong housing markets in 2006-2008.
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