Two years in, this decade has already brought a global pandemic, record-setting inflation, rising interest rates and a country more divided than ever before.
So why not a housing crash too?
Americans who lived through the 2008 crisis may be watching the red-hot market starting to cool and getting flashbacks. And for prospective homeowners, it might be appealing to put your plans on pause until the market bottoms out so you can snag a house at a great price.
But experts say there are good reasons to believe that however this shakes out, it won’t be a return to 2008 — which will no doubt be a relief to anyone whose apple bottom jeans and boots with the fur have been long put away in storage.
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1. Lenders stopped being so laxBlame it on the banks. A huge contributor to the housing crisis in 2008 was dicey lending practices within the financial industry. Years of deregulation made it easier — and more profitable — to hand out risky loans.
The Dodd-Frank Act, which was signed into law in 2010 aimed to prevent that by increasing oversight in the industry.
While the act’s effectiveness has been called into question over the years, it has undoubtedly forced lenders to be stricter about their lending practices, which means far fewer borrowers are likely to land in hot water.
The median credit score of newly originated mortgages was 776 in the first quarter of the year, according to the Federal Reserve Bank of New York. But nearly 70% of new mortgage holders had a credit score of 760 or more.
The New York Fed added in its quarterly analysis that, “credit scores on newly originated mortgages remain very high and reflect continuing high lending standards.”
2. Homeowners are doing fineThe onset of the pandemic could have been catastrophic for the housing market if millions of homeowners had no choice but to default on their loans.
Fortunately, mortgage forbearance programs allowed struggling borrowers to pause their payments until they could get back on their feet. And it worked: by the end of March, the share of mortgage balances 90-plus days past due remained at 0.5% — a historic low.
And compared to 2010, when delinquencies on single-family homes hit a 30-year high of 11.36%, the rate was just 2.13% in the first quarter of 2022.
On top of that, rising home prices has translated into increased equity for homeowners. In total, mortgage holders now have $2.8 trillion more in tappable equity compared to a year before, according to Black Knight, a mortgage technology and data provider. That’s a 34% increase and more than $207,000 in additional available equity per borrower.
3. There’s still plenty of supply“It’s not always as simple as supply and demand — but it almost always is,” host Dave Ramsey said on The Ramsey Show earlier this month.
Ramsey says the major issue in 2008 was there was a “tremendous oversupply because foreclosures went everywhere and the market just froze.” The crisis wasn’t down to the economy or interest rates, it was “a real estate panic.”
In comparison, now, there’s a huge demand and a shortage of supply. But the Federal Reserve’s efforts to dampen demand by raising interest rates is starting to work. And new housing is starting to slowly come on the market as well.
What Ramsey says we’re seeing now is a softening in the rate of increase of prices, but he doesn’t anticipate they’ll go down like they did in 2008.
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