Two years later, this decade has already brought a global pandemic, record inflation, rising interest rates and a country more divided than ever before.
So why not a housing accident too?
Americans who lived through the 2008 crash may be seeing the red-hot market begin to cool and have flashbacks. And for prospective homeowners, it might be interesting to put your plans on hold until the market hits rock bottom so you can get a home for a great price.
But experts say there’s good reason to believe that, however much that happens, it won’t be a throwback to 2008 — which will no doubt be a relief to anyone whose apple-skin jeans and boots have long been stowed away. .
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1. Creditors are no longer so negligent
It’s the banks’ fault. A major contributor to the housing crisis in 2008 was risky lending practices in the financial sector. Years of deregulation have made it easier – and more profitable – to make risky loans.
O Dodd-Frank Lawwhich was sanctioned in 2010 with the objective of preventing this, increasing inspection in the sector.
While the law’s effectiveness has been questioned over the years, it has undoubtedly forced lenders to be stricter with their lending practices, meaning far fewer borrowers are likely to get into trouble.
The average credit score for newly created mortgages 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 review that “credit scores on newly created mortgages remain very high and reflect the high standards of ongoing lending.”
2. Owners are doing well
The start 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 deferral programs have allowed struggling borrowers to pause their payments until they can recover. And it worked: until the end of June, the share of mortgage balances overdue for more than 90 days remained at 0.5% – an all-time low.
And compared to 2010, when delinquency in single-family homes hit a 30-year high of 11.36%, the rate was just 2.13% in the first quarter of 2022.
In addition, rising house prices have translated into increased equity for homeowners. In total, mortgage holders now have $2.8 trillion more in exploitable capital compared to a year ago, according to Black Knight, a provider of mortgage technology and data. This represents a 34% increase and more than $207,000 in additional available capital per borrower.
3. There is still plenty on offer
“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 main problem in 2008 was that there was “a massive oversupply because foreclosures went everywhere and the market just froze.” The crisis was not due to the economy or interest rates, it was “a real estate panic”.
In comparison, right now, there is huge demand and a shortage of supply. But the Federal Reserve’s efforts to dampen demand by raising interest rates are starting to work. And new housing is slowly starting to hit the market as well.
What Ramsey says we’re seeing now is a slowdown in the rate of price increases, but he doesn’t predict they will fall like they did in 2008.
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