Are We In A Housing Bubble? 5 Credit Union Leaders Weigh In

Supply still lags demand but price hikes are slowing, and a lot has changed in the past 15 years.

 
 

There are a lot of unpleasant memories from the housing bubble that burst as the economy imploded and the Great Recession began nearly 15 years ago, including drastically falling property values, upside-down loans by the millions, and staggering foreclosure rates.

While the national median home price has surpassed $400,000, a strong labor market and stricter underwriting standards are expected to provide a buffer against a sudden collapse, as was the case during the last housing crisis. That’s been the conventional wisdom as records for high prices and low inventory fell month after month through the pandemic.

But are things changing? The Fed is waging mortal combat with inflation the likes of which haven’t been seen in 40 years, and soaring interest rates are not just crimping affordability but also raising fears of recession.

Some industries already are laying off workers (especially among the big mortgage lenders), and there are other signs of change. Black Knight, for instance, just reported the slowest month-over-month growth in home prices since 2006, while CoreLogic says foreclosures edged up this spring after hitting historic lows late last year.

So, are we in a housing bubble? Well, all real estate is local, so here’s what five credit union executives with their fingers on the pulse of their local markets have to say.

“To some extent, yes.”

Tom Ernsperger, EVP/Chief Lending Officer, One Nevada Credit Union

“To some extent, yes. Particularly here in the Las Vegas market, where housing price appreciation has been among the national leaders for some time. Remarkable home price increases combined with quickly rising rates have already priced a number of potential borrowers out of the market.

“While I don’t see it being nearly as volatile as during the last recession, I think we’ll see home sellers coming off their asking prices to facilitate sales. We’ve already seen a bit of this.”

 

 

“I don’t believe we’re in a housing bubble or heading for one.”

Marty Burke, Vice President/Mortgage Development Officer, Franklin Mint FCU ($1.6B, Chadds Ford, PA)

Marty Burke, Vice President/Mortgage Development Officer, Franklin Mint FCU

“I don’t believe we’re in a housing bubble nor are we headed for one. From 2008-2011, home prices decreased by over 30% and caused homeowners to become upside down, owing more than the home’s value. 

“In this market, house appreciation will slow to low single-digit appreciation by year’s end, but values will tend to stabilize and not decline. As rates rise, home-buying demand will slow. We’ll see more inventory available for buyers still seeking the opportunity of homeownership.”

 

 

“Wow, that’s the magical question.”

Wendy Dawson, Vice President of Mortgage Lending, Coastal FCU ($4.8B, Raleigh, NC)

Wendy Dawson, Vice President of Mortgage Lending, Coastal FCU

“Wow, that’s the magical question. No one can know for certain how the market will change over the next few days, weeks, or months, and economic news will continue to impact the housing market one way or another. 

“I do feel confident and fortunate that Coastal operates in a footprint (NC, SC, and VA) with enormous demand for housing that is likely to continue. The last estimate I read warned that the national housing inventory is well below what’s needed, potentially as much as 3 million homes below demand. This underpins the entire market and should be considered when discussing the current state of the market. 

“Especially as the market shifts, we’ll do our best to make sure our products continue to be tailored to the needs of our members and our markets. This, combined with our conservative and sustainable approach to growth, will continue to help us achieve our goals.”

 

“There are good arguments on both sides, but I wouldn’t call it a bubble.”

Doc Dougherty, Chief Lending Officer, Together Credit Union

“There are good arguments on both sides, but I wouldn’t call it a bubble. A housing bubble requires both a rush of speculators entering markets and overvalued homes. From what I review and follow, values have increased swiftly over the past few years. However, unlike the bubble of 2008 -09, this recent housing boom is not underpinned by the crazy speculation that we saw back then, and underwriting practices have improved dramatically.

“In some U.S. markets, we’ll likely see 10% to 15% declines if we end up in another recession. Fortunately, those of us living in the Midwest don’t experience the crazy market swings that occur more often in the Northwest and Southwest.

 

“There’s still a housing supply shortage so a housing bubble seems unlikely.”

Andrew Clarkson, Vice President for national mortgage production, United FCU ($3.9B, St. Joseph, MI)

Andrew Clarkson, Vice President for national mortgage production, United FCU

“I don’t believe so. The current economic stress isn’t originating from the housing market. Jobs and incomes remain in strong positions. Inflation and supply chain issues continue to be the primary stressors of this economy.”

“The housing market will eventually react to rising rates. We’ve seen an increase in price reductions and that trend may very well be normal over the next several months as interest rates climb. But, according to national real estate associations, there’s still a housing-supply shortage so a housing bubble seems unlikely.” 

These interviews were edited and condensed.

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