Two years on, this decade has already brought a global pandemic, record inflation, rising interest rates and a country more divided than ever.
So why not a housing crash as well?
Americans who lived through the 2008 crisis may be watching the hot market begin to cool and experience flashbacks. And for prospective homeowners, it can be tempting to put your plans on hold until the market bottoms out so you can snag a home at a great price.
But experts say there’s good reason to believe that whatever it is, it won’t be a throwback to 2008 – which will no doubt come as a relief to anyone whose jeans and fur boots have long been put away. .
1. Lenders stopped being so lax
Blame it on the banks. A huge contributing factor to the 2008 housing crisis was the dodgy lending practices in the financial industry. Years of deregulation made it easier—and more profitable—to make risky loans.
The Dodd-Frank Actwhich was signed into law in 2010 aimed to prevent this by increasing oversight of the industry.
While the law’s effectiveness has been questioned over the years, it has undoubtedly forced lenders to be stricter about their lending practices, meaning far fewer borrowers are likely to land in hot water.
The median credit score of mortgage originators was 773 in the second quarter of the year, according to the Federal Reserve Bank of New York. But 65% of new mortgage holders had a credit score of 760 or higher.
The New York Fed added in its quarterly analysis that, “credit ratings for mortgage originations remain very high and reflect continued high lending standards.”
2. Homeowners are doing just fine
The onset of the pandemic could have been devastating 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 stop making payments until they could get back on their feet. And it worked: by the end of June, the share of outstanding mortgages 90 days or more delinquent remained at 0.5% — a record low.
And compared to 2010, when single-family delinquencies hit a 30-year high of 11.36%, the rate was just 2.13% in the first quarter of 2022.
Additionally, rising home prices have translated into increased equity for homeowners. Overall, mortgage holders now have $2.8 trillion more in available equity than a year ago, according to Black Knight, a provider of mortgage technology and data. That’s a 34% increase and more than $207,000 in additional available equity per borrower.
3. There is 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 last month.
Ramsey says the biggest issue in 2008 was that there was a “huge oversupply because foreclosures went everywhere and the market just froze.” The crisis wasn’t about the economy or interest rates, it was “a real estate panic.”
Comparatively, now, there is huge demand and lack of supply. But the Fed’s efforts to dampen demand by raising interest rates are starting to pay off. And new homes are slowly starting to come on the market as well.
What Ramsey says we’re seeing now is a softening of the pace of price growth, but he doesn’t foresee them falling like they did in 2008.
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This article provides information only and should not be construed as advice. Provided without warranty of any kind.