With rising prices and a market usually described as “hot,” you may wonder if Bellingham’s in a housing bubble similar to what happened during the last recession.
NOTE: Matthew Gardner is a Yale graduate and professor of economics at the University of Washington. He is also Windermere’s resident economist. The graphs are from a recent presentation he gave to Whatcom County Windermere agents. The views and explanations are ours.
One of the key contributing factors that allowed the bubble—and collapse—of the real estate market included too-easy credit to buyers. It was at that time possible to get a mortgage with a low credit rating and without really being able to afford the payments, especially when a variable rate kicked in and monthly payments went up.
And many of these loans were made with low or no down payments. So people had little to lose when their mortgage became too hard to pay, as so many of them did. Then buyers just walked away, adding another vacant house to the market.
At the same time jobs were disappearing. This meant lots of houses for sale and no one to buy them. Cue the popping sound effect.
Tighter Loan Policies
In the graph below you can see that there’s been a flip in the proportion of highly qualified home buyers to less qualified buyers.
This happened because new laws were created to prevent another housing collapse: Loan qualifications are now more stringent. And clearer explanations of what they’re committing to are provided to buyers.
Homeowners have more equity in their homes than during the bubble.
As home prices rise, homeowners have more equity in their homes. This serves as another safeguard against owners dumping homes on the market in great numbers, and so lowering prices.
Also, new homes are not projected to be built in great numbers.
Here in Whatcom County, zoning restrictions limit the opportunities for building sites. And the lack of available lots boosts the price of those lots, further inhibiting development. This is keeping supply low and demand high for local housing.
Add to this a large reservoir of renters who want to buy.
And employment is slowly growing.
So, while a few markets may be overheating, there is not an overall bubble forming. And, while prices will continue to rise in Whatcom County, there’s not even a hint of one here.