Prices Are so High! When is the Housing Market Going to Crash!?!?
When the last housing market crashed, about nine million families lost their homes between 2006 and 2014. Home values fell beyond 30%, and homeowners lost a combined $7 trillion. It has taken about a decade for most markets to recover, and some have not.
As homes today sell for record highs, many wonder if a housing market crash is on the way.
However, things are different now. Before the Great Recession, homes were falsely valued, and lending standards were lax. Moreover, getting a subprime mortgage was more accessible than getting a toy out of a claw machine.
So, what’s “different” now?
Stricter Lending Standards
The current housing boom is partly fueled by pandemic-related demand and low-interest rates. Experts say comparing this one to the last one would be an apple to oranges comparison.
Today’s mortgage lenders are far stricter as they are offering loans to borrowers with higher credit scores. This is much different than we saw pre-2008 housing market. Danielle Hale, the chief economist at Realtor.com, also gave some insight.
“In fact, banks gave tightened underwriting requirements in the wake of lockdowns last year, so buyers are more qualified than they’ve ever been in quite some time.”
Data from the Mortgage Bankers Association also shows mortgage credit availability plunged as we entered the pandemic. That is the lowest level in six years.
All in all, banks today are more careful than they were before the Great Recession. Today’s housing demand is much more organic as it is built on a rapidly growing demographic wave. We have millennials turning 30, which is a crucial age for first-time home buying.
Here are Three Reasons Why You Shouldn’t Worry
Declining Forbearance Programs
First, a Black Knight report in April 2021 shows that forbearance programs declined for the sixth time in a row. It was also the most significant drop in six months.
Buyers Are More Qualified
Second, buyers who purchased from 2010 to 2017 have fixed low debt costs due to low mortgage rates, rising wages, and nested equity. A HousingWire expert stated when homeowners from this period originated their loans, their credit profiles were excellent and the best he’d ever seen.
This was unlike the 2008 housing market when profiles weren’t healthy. In other words, anyone with a pulse could get a loan. During that era, it was a high-risk lending market.
The third and final reason we shouldn’t worry is because of jobs. When the pandemic first began, many “experts” said the market would crash due to lost jobs. However, most of the jobs lost are in the tourism industry, which is typically low-paying with young workers who more than likely weren’t homeowners in the first place.
On the other hand, modern technology has allowed many people to keep their jobs and work from home. Many jobs are also coming back as people get vaccinated.
A Housing Market Crash Isn’t Likely
After all, I believe we’re more likely to see a housing market correction long before we see a crash.
The key factors that will keep a crash from happening are higher lending standards, pandemic mortgage forbearance, and homeowners’ equity cushion.
The National Association of Realtors® top economic and housing experts predict job growth will continue and interest rates will remain stable in 2021.