Michael Brush, a columnist for MarketWatch.com believes that we are seeing the beginning of the next housing crisis. He points to current market conditions that mirror those in the lead up to the last housing crash. For example, home prices have shot up by 30% in some areas, including the Bronx. Some financial websites are once again discussing flipping homes. And finally, we are seeing a resurgence in “quick mortgage” ads from companies like Quicken and Rocket Mortgage.
These factors aren’t necessarily proof of anything. However, Brush also points to the fact that first-time home buyers with government-backed loans are only putting down, on average, 3.5%, compared to the old standard of 20%. These loans are not the same as the zero percent down “liar loans” that were issued during the housing bubble of the early 2000s. When repeat buyers were factored in, the current average down payment hit 5%. Brush believes that we are seeing more loans with less affordable payments than in previous years. A debt to income ratio of 43% or less is generally seen as a good indicator that a borrower will be able to afford a mortgage payment. As of March of this year, 28% of loans exceed that limit. This means that a sizeable number of borrowers are one financial mishap away from defaulting on their mortgages. According to one analyst cited by Brush, 12.4% of recent mortgages would default if a 2007-style recession hit again. While the number may be lower (the last recession was particularly deep), it is still disturbing.