Real Estate Talk: While home prices match a decade ago, it’s a different market

Marty Kovacs is the 2017 Chairman of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. Courtesy photo.
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Throughout most of the nation, including here in the Santa Clarita Valley, home prices are close to the boom levels of a decade ago — which foreshadowed the onset of The Great Recession. But today’s housing market is dramatically different.

Backed by tighter lending standards and more solid economic fundamentals, current price appreciation nationwide is being driven by strong supply-and-demand dynamics with no signs of boom-era flipping or over-construction, reported recently.

On the surface, today’s housing market looks suspiciously similar to the pre-recession years with rising home prices and feverish buyer demand. However, a deeper analytical assessment reveals material differences — historically low inventory levels, much tighter lending standards and significant job and household growth ­— and a strong housing market backed by economic fundamentals.

The U.S. median home sales price in 2016 was $236,000, 2 percent higher than in 2006.

Here in the Santa Clarita Valley, the median price this October came in at $580,000, just 9.8 percent below the record high of $643,000 set in April 2006.

Indeed, 31 of the 50 largest U.S. metros are back to pre-recession price levels. Austin, Texas, had the largest price growth in the last decade with a 63 percent increase. As fewer people can afford the rising prices, the pace of price hikes have slowed, especially here in high-priced California. But elsewhere national data found that listing prices were posting double-digits hikes for most of 2017.

“As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash,” said Danielle Hale, chief economist for “It was rising prices stoked by subprime and low-documentation mortgages, as well as people looking for short term gains — versus today’s truer market vitality — that created the environment for the crash.”

The largest difference in the last decade is that lending standards now are the tightest they have been in almost 20 years. Today, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires loan originators to show verified documentation that a borrower is able to repay the loan. As a result, the median 2017 home loan FICO score (a measure of credit worthiness) was 734, significantly up from 700 in 2006, on a scale of 330 to 830.

The bottom 10 percent of borrowers also has much higher credit scores with a FICO of 649 in 2017, up from 602 in 2006. While military veterans and others with specialized mortgages can still put zero percent down, these mortgages today include additional restrictions to ensure they can be paid back. Gratefully, lenders no longer allow the “liar’s loans” of last decade.

“Lending standards are critical to the health of the market,” Hale said. “Unlike today, the boom’s under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products.”

A decade ago, the widespread erroneous belief that home prices could never go down spurred rampant home flipping and building. Today, tight lending standards have kept flipping and over-building in check, but are contributing to severely constrained construction levels.

Prior to the crash, flipping became increasingly mainstream with amateur flippers taking on multiple loans. In 2006, the share of flipped homes reached 8.6 percent of all sales nationwide, soaring to 30 percent in select markets. Flipping accounted for 5 percent of sales in 2016, a more restrained level.

Marty Kovacs is the 2017 Chairman of the Santa Clarita Valley Division of the 9,800-member Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.


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