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60 mortgages with no down payment at all. When a borrower has a low down payment for a mortgage, a couple of things occur. First, the person buying the home doesn't have to place much initial money in the home. Now what does that do? is pushes up home prices, because more money must be invested by lenders in their houses. is means for first-time homebuyers putting down a 5 percent down pay- ment and borrowing more than is affordable, the situation becomes much riskier. But when prices in markets with traditionally lower median home prices rise, it forces prices up across the board. So, in the mid-1990s, the U.S. began to experience a housing price bubble. Housing prices were rising at a high rate, about 10 percent per year. According to Wallison, houses became exceed- ingly expensive, as more and more people, even those who could otherwise have bought homes with a prime mortgage, had to borrow much more in order to secure homes. Both those below and above median income were suddenly having to borrow more to buy these over inflated homes. In 2008, the market reached the point where housing prices were so expensive that homes were no longer affordable, no matter how much money a buyer could borrow. Due to the gradual deterioration in loan quality after 1992, more than half of all mortgages in the U.S. were subprime by 2008—at 31 million loans. erefore, the price for homes flattened out. Homeowners who were having trouble meeting their mortgage obligations could no longer refinance their mortgage so they could make their payments. ey had to default—and when the market tanked, those homes weren't worth as much. "If you were to see a chart of what housing prices look like now, their increase over the last six months, compared to where we were in the mid-1990s, you'd see that the lines are just about conjoined," Wallison said. "Housing prices are beginning to rise very fast for exactly the same reason." CURRENT CONDITIONS Today, the continuous market narrative of tight inventory, high home prices, and low mortgage rates has economists debating the potential for a second housing bubble. While there is skepticism, are all the right elements present to form another national bubble? Economists have studied booms and busts from a historical perspective for many years, such as the Dutch tulip mania of the 17th century or Great Britain's South Sea Bubble of the 18th century. e common denominator among these events is the disconnect between supply and de- mand, according to George Ratiu, the National Association of Realtors' Managing Director of Housing and Commercial Research. "Looking at the housing markets of 2005- 2006, we had a disconnect between the level of home price appreciation and the underlying financing of real estate, which led to the housing crash. In 2017, we are in a very different envi- ronment, both economically and from a market perspective," said Ratiu. e economy has been advancing at a steady pace for several years; employment gains have boosted both wages and demand. Ratiu believes that current price appreciation trends are driven by strong demand being coupled by insufficient supply. On the financing side, the market is also in a differ- ent space, where lenders are much more stringent in underwriting mortgages compared to before. So what exactly are the ingredients to a poten- tial bubble? According to Dr. Eddie Seiler, Chief Housing Economist at Summit Consulting, there are three characteristics to look out for. "e first one was demand, which is more economics, but the other two are more related to psychology," Seiler said. "In the past bubble, there was a belief that house prices would keep going up and up, and that led to a lot of very lax lending, so there was a lot of speculation. So, while we have a lot of demand at the moment, I think there's less speculation and less exuberance." Seiler said. According to Frank Nothaft, CoreLogic's Chief Economist, today's home prices are high relative to income and to rent in many markets, just as they were in 2006. However, that's where he believes the similarity ends. "For one, interest rates, and capitalization rates, are much lower, so a given income, or rent stream, is consistent with somewhat higher prices," Nothaft said. "Second, no- and low-doc lending, subprime, and no-down payment lending facilitated by second liens, all of which were com- mon in 2006, have largely vanished from today's market. ird, the speculative 'flipping mania' of 2006 is absent from most metro areas." Tian Liu, Chief Economist of Genworth Mortgage Insurance, also recognizes similarities between the past and the present. Liu says the economy is at the mature stage of an economic expansion, just like during the 2005-2007 period. "e job market is at full employment, with the unemployment rate under 4.5 percent," Liu said. "During the 2005-2007 period, the unem- ployment rate was at a similar level. In the current cycle, the Federal Reserve began to tighten mon- etary policy in December 2016. In the last cycle, it began to tighten in the middle of 2004." e market has also been in the middle of a housing expansion over the past few years, just as in the crisis period. Home prices were gaining at 9 to 10 percent per year during 2004 and 2005, versus 5 to 6 percent in the last two years. In both cases, home-price gains accelerated. Homebuild- ing was then, and is now, also on the rise. In the mortgage-lending industry, lending standards have been loosening, although from very different starting points. Today, housing is undersupplied with new construction still well below historically normal levels. Home prices are back to the previous peak in nominal terms, but still below the previous peak after adjusting for inflation. Current mortgage rates are around 200 basis points below their 2005-2007 levels, meaning that Bubble Factors to Watch HIGH HOUSING PRICES Home prices have been on the rise since 2012, outpacing inflation by 34 percent. However, Freddie Mac reports "this is nowhere near the runaway price growth of the late '90s and early 2000s." INVENTORY SHORTAGES According to the October RE/ MAX National Housing Report, September marked the fifth month in 2017 to post a decline in home sales, spurred at least in part by a nationwide lack of inventory, especially entry-level homes. AFFORDABILITY An October 2017 Urban Institute study reported that the median American household "can afford a house that is $70,000 more expensive than the price of the median house sold." EASY CREDIT The presence of easy credit is one of Freddie Mac's top warning signs of a potential housing bubble. However, Freddie points out that it's more difficult than ever to qualify for a mortgage today, and homeowners are not increasing their mortgage level. FOREIGN DEMAND According to the National Association of Realtors, foreign investment in domestic real estate is at new highs. Between April 2016 and March 2017, $150 billion of residential property was purchased by foreign buyers and foreign immigrants, a 49 percent jump.

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