So many people reached out to us wanting to know is it 2008 all over again? what’s going to happened? Where we’re heading…?
So with all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), people are concerned we might be heading towards another housing crash like the one we experienced from 2006-2008.
The feeling is understandable. we are just as concerned and with everyone just finished “licking their wounds” from 2008, well… You get the point.
We were was able to gather 5 points that might be able to calm us down. As I said, we’re just as concerned but basically trying to look at the facts and think about it rationally, logically and leave all the emotions, background noises and panic aside.
So lets talk about some facts…
1. Mortgage standards today are nothing like they were prior to 2008.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time. The higher the index, the easier it is to get a mortgage. As shown, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
https://www.mba.org/news-research-and-resources/research-and-economics/single-family-research/mortgage-credit-availability-index
2. Prices are not soaring out of control.
The graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash. There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.
3. Inventory – We don’t have a surplus of homes on the market. We have a shortage.
The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
https://www.nar.realtor/blogs/economists-outlook/inventory-and-months-supply
4. Houses affordability – Houses became too expensive to buy.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
5. People are still equity rich..
In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before.
During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
NOW!!!!
And that’s a big “NOW”. Reason number 4 has a very big unknown factor in it and it’s wages earned / household income. With everything going on right now, some might loss their job, their business might get into a tough spot and this is what kinda concerns us…
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#Crisis #RachelandJakeDadon
Jake Dadon Realtor(R) Home Smart, S.0172966
Fair Housing,
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