The market in which Bruce Van Saun, CEO of Citizens Financial Group, watches the most these days for potential valuation bubbles: residential housing.
The big picture: Lower interest rates, labor and supply chain pressures affecting home builders and the investor class who pick up homes have all helped push prices up, note- he does.
The context: The median selling price of existing homes in August was 15% higher than a year ago, marking 114 consecutive months of year-over-year growth, according to the National Association of Real Estate Agents.
Reality check: Banks are under pressure to extend credit to low- and moderate-income borrowers who have historically been excluded from one of America’s most powerful vehicles for creating wealth: homeownership.
- This can lead to a balance for banks between a desire to increase the flow of credit and sound financial management for borrowers and lenders, Van Saun said.
What they say “If you’re going to venture into this territory and you think real estate values might be a bit overvalued at this point, and might come down as the Fed hikes rates, these [loans] will become more risky, ”he said.
- “When you see big double-digit increases in major housing markets, it doesn’t look sustainable,” Van Saun added.
Go back: Residential mortgages, of course, were one of the engines of the financial crisis.
- Main differences in the market this time around: There isn’t as much pure speculation on houses. Most buyers and lenders have gotten rid of the assumption – and the corresponding behavior – that prices can alone go up, he notes.
Go further: The housing market is getting even hotter