Should I wait for real estate prices to drop before buying a home? Here are 3 simple reasons why this housing downturn is not like 2008

Should I wait for real estate prices to drop before buying a home? Here are 3 simple reasons why this housing downturn is not like 2008

Two years later, the last decade has already seen a global pandemic, record-setting inflation, rising interest rates and a country more divided than ever.

So why not a housing crash too?

Americans who lived through the 2008 crisis watching the red-hot market may be cooling off and getting flashes. And for prospective homeowners, it can be tempting to put your plans on hold until the market closes so you can buy a home at a great price.

But experts say there are good reasons to believe that, however this hangs, it won’t return to 2008 – which will no doubt be a relief to anyone who has put on their fur-lined jeans and apple-bottom boots. away in storage for a long time. .

Don’t lose

1. Lenders stop being so lazy

Blame it on the banks. The housing crisis of 2008 was a major contributor to the dicey lending practices within the financial industry. Years of deregulation made it easier – and more profitable – to give out risky loans.

The Dodd-Frank Act, signed into law in 2010, aimed to prevent that by increasing oversight in the industry.

While the effectiveness of the act has been questioned over the years, it has certainly forced lenders to be stricter with their lending practices, meaning that far fewer borrowers are likely to land in hot water.

The average credit score for mortgage originations in the second quarter of the year was 773, according to the Federal Reserve Bank of New York. And 65% of new borrowers had credit scores of 760 or higher.

The median is down from a series high in the previous quarter, but the Fed said in its quarterly analysis that, “credit scores on mortgage originations remain very high and reflect continued high lending standards.”

2. Homeowners are doing great

The onset of the pandemic could be devastating to 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 June, the share of mortgage balances 90-plus days past due remained at 0.5% – a historic low.

And compared to 2010, when there was a 30-year increase of 11.36% in convictions in single-family homes, the rate was only 2.13% in the first quarter of 2022.

As of June, 2.7% of the outstanding debt was in some stage of delinquency, amounting to $435 billion in arrears. That may sound like a lot, but it’s a drop of two percentage points from pre-pandemic numbers.

In addition, rising home prices have translated into increased equity for homeowners. Although home prices have fallen slightly, by the end of the second quarter, mortgage holders had $11.5 trillion in usable equity — the 10th highest in a row, according to Black Knight, a mortgage technology and data provider.

And even as the numbers show that the real estate market may be slowing, Black Knight added that “the market is on a strong footing to resolve” since the market’s overall leverage (with its including first and second liens) only 42% of the mortgage. home values ​​— the lowest on record.

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 back in June.

Ramsey says the big issue in 2008 was that “there was a huge oversupply because foreclosures went everywhere and the market froze.” The crisis was not because of the economy or interest rates, it was “real estate panic.”

Compared to that, now, there is a great demand and a shortage of supply. But the Federal Reserve’s efforts to ease demand by raising interest rates are starting to work. And new housing is slowly starting to come on the market as well.

Ramsey’s position has not changed in the months since. In a blog post in mid-October, he addressed the question of whether the country is now in a housing recession.

“What we are really seeing now is the number of home sales returning to normal pre-pandemic levels,” Ramsey wrote. “In other words, this is more of a housing market correction than a recession.”

It doesn’t stop readers from wanting to buy now, in fact, he offered a bit of encouragement: “If you’re looking to buy, you’ll have a few more options – and maybe less competition. It may take even longer to save a down payment or find your dream home, but the hustle and bustle is easing.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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