No matter which US home price index you choose, US home prices have risen above the peak of the housing bubble in April 2007 (as highlighted in the book and film “The Big Short”).
Thanks to relaxed credit standards, including the infamous NINJA (no income, no job) loans, the US saw a steady and increasing growth in mortgage credit and a corresponding growth in home price growth … until 2005. Then the bottom fell out out the housing market.
Today, we are witnessing a slowing of home price growth even as earnings growth is at its highest level since early 2009. The last time we saw home price growth and earnings growth so in alignment was back in the 1995-1998 period following the enactment of HUD’s National Homeownership Strategy.
The big difference between the 2000s housing bubble and today’s housing bubble is that the 2000s housing bubble was driven by subprime and ALT-A credit. But today’s housing bubble is in part driven by foreign investors on both the west and east coasts, not to mention the Federal Reserves low interest-rate policies. And we are seeing a softening of credit standards from Fannie Mae and Freddie Mac.
And Fannie and Freddie’s debt-to-income (DTI) is rising to 2008 (financial crisis levels).
So does the US have a tiny bubble? Or a big bubble?