The housing market is very fluid and keeps changing. Today’s housing market has changed considerably from the flourishing market we all knew in the past decade. In mid-2022, real estate had a significant shift that had people comparing it to the housing crisis in 2008. However, there are differences between this period and the 2008 crisis. If you are looking for a Tenerife property for sale sea view, take the bold step today!
Differences in 2008 and Today
As we begin the New Year 2023, what was the housing market like in 2022 compared to 2008? The general US economy is not in a recession, but the housing industry has been in a recession since August 2022, with the following happening:
- Job Loss
- Incomes reduce
- Reduction in production
- House sales falling with the demand falling
The above, plus high inflation, mortgage rates, and housing prices have led to discussions about whether the housing market might crash. Some experts insist that a crash will happen, while others insist the market is going through a correction, a softer type of downturn. There are significant differences between the market fifteen years ago and the current market, even though the home price growth accelerated during both markets.
Verification of Income and Assets
In the 2008 crisis, a buyer underwent minimal income verification. Some buyers would state they made a certain amount to qualify for a home loan but earned lower. When it came to payment, the borrowers who had overstated their income could not pay. Today, there is a more rigorous verification of a buyer’s income.
Demographics
In 2008, there was a smaller population of people in their 30s, the prime age for home buying. There was also more home-building. Today, many people come into their home-buying years in the middle of a housing deficit. In a commissioned report by the NAR (National Association of Realtors) in 2021, the US has had an underbuilding gap of between 5.5 million and 6.8 million houses since 2001. The market has too much demand compared to the supply, with more people wanting homes to buy and not enough houses to go around.
Equity Amount
Today, we have more equity in the housing marketing market due to significant gains in home prices. The borrower equity during the crisis was less than the current one. When the borrowers defaulted, they underwent forced sales and huge losses. If borrowers face issues today, they have more options for loss avoidance due to the increased equity.
Even if home prices drop, the number of borrowers that borrow more than a house’s worth reduces significantly compared to back then. Fewer loans today have ARMs (Adjustable rate mortgages) riskier than fixed-rate mortgages. The risk in ARMs is that the homeowners might have to make higher payments per month if the rates go up.
Lending Standards
Today, the lending standards are different than they were fifteen years ago. The rules in the mortgage market have changed. Buyers have to be highly qualified and ready to have lenders pull their credit multiple times in the process. With prices decreasing, borrowers can sell like in 2008.
When the 2008 crash hit, things were tough market-wide. However, the current condition has only affected some, and housing and mortgages are stable. This situation means defaults, foreclosures, and delinquencies are low and well-contained.
Mortgage Rates Have Shot Up
The affordability formula contains the following:
- The home price.
- The wage earned by the buyer.
- The available mortgage rate.
Fifteen years ago, home prices were high, wages were lower, and mortgage rates were higher than 6%. In today’s market, the prices have slightly reduced, wages have gone up, and mortgage rates reduced to about 3.5% in 2019. However, the rates have now shot up again, last sitting at 7.14% in November, the highest rate since 2001.
Will the House Market Crash?
Whether the housing market will crash like it did in 2008 elicits mixed reactions from different quarters. Some economists insist the market will correct itself, while others say that homeowners today are more secure than those in the 2008 crash, making a crash unlikely. Homeowner equity is now at its highest compared to the last few decades, meaning homes have a lot of value. With more restrictions and regulations, the mortgage market is more robust, less risky, and less volatile than it was fifteen years ago.
A home is arguably the most significant investment you will ever make, and buying in any market is your prerogative. However, you must evaluate your financial position before you buy. Don’t try to buy based on predictions of what might happen. If you stall and wait for lower prices, you might get disappointed. Start with your budget, stick to it, and buy your home.
Common Questions About Real Estate