Looking ahead, Bank of America expects limited housing inventory, high prices, and labor shortages to be headwinds for some time. "Household balance sheets are in very good shape at the moment, and leverage does not appear to be a major concern." "At first blush this difference may seem concerning, but one explanation is that the speed of home price growth has exceeded income growth over the years," the economists wrote. Mortgage debt to disposable personal income hit 65% in the second quarter of this year compared with a peak ratio of 45% in 1980. (AP Photo/Rich Pedroncelli, file) (ASSOCIATED PRESS) In this Jfile photo, a bank owned home is seen for sale in Sacramento, Calif. ![]() In the years leading up to 1980, the consumer price index, or CPI - a closely watched inflation gauge - jumped to 14.8% on an annual basis. Back then, inflation was also running high. Instead, the economists argue, the housing market resembles the early 1980s in several key ways. "The ratio of mortgage debt to real estate assets (i.e., loan-to-value) was 27% in 2Q 2023, significantly lower than 2010." More of a 1980s feel "Household mortgage debt was 65% of disposable income in 2Q 23, compared to a peak of 100% at the start of the financial crisis," they wrote. ![]() That’s a major difference, the economists pointed out. Purchasers now face higher standards - and did even during the go-go homebuying years of the pandemic. They also peddled adjustable-rate mortgages that later ballooned balances and had no cap on rate increases. Lenders didn’t check income, made loans to risky borrowers, and allowed purchases with no money down. Home loans were also easier to get in the years leading up to 2008 with looser standards as the norm.
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