There’s a lot of talk about the real estate market right now and its potential decline. The economy is in the doldrums, interest rates are rapidly rising to keep up with inflation, and the red-hot housing market from just a few months ago is showing signs of weakening.
Home sales are slowing, new mortgage applications are declining, and people across the country are being forced to cut prices in areas where there were major bidding wars not too long ago.
Some worry that we’re on the cusp of another housing crash like 2008, but most analysts and experts say this isn’t like that.
Of course, no one can tell the future, but we know there are substantial differences in the housing market now compared to the time leading up to the Great Recession.
1. Homeowners Seem Okay
During the pandemic, mortgage forbearance programs allowed borrowers to pause payments until the worst of their issues passed. If millions of homeowners were facing no other choice than defaulting during that time, we’d be in a much different situation now.
By the end of March, the mortgage balances in the U.S. that were 90-plus days past due hovered at 0.5%. That’s a historic low.
In 2010 delinquencies in single-family homes hit a 30-year high of 11.36%. In the first quarter of 2022, the rate was only 2.13%.
The soaring home prices have also led to more equity for homeowners. Mortgage holders have around $2.8 trillion more equity than a year before that they can tap into.
2. Supply is Increasing a Bit
When there’s a major issue in the housing market, it’s almost always because of a problem with supply and demand. It doesn’t always have to be the situation, but largely it is.
In 2008, the issue was one of too much supply. Foreclosures were going on everywhere, and the sense of panic led to a freeze in real estate.
Now, there’s more demand than supply, which can create problems. The Federal Reserve, however, to control interest rates, is helping to bring the housing market back into a sense of balance.
There’s slowing demand, and more inventory is coming on the market.
While the prices are going down because of multiple factors, they’re not likely to see the dramatic declines of 2008.
3. Lenders Aren’t Like They Were Leading Up to 2008
If you’ve gotten a mortgage in recent years, you’ve experienced the rigorous process. One of the main contributors to the crisis in 2008 was that there were lax lending practices in the financial industry. Deregulation had been going on for years, making it easy and profitable to give borrowers who probably shouldn’t have qualified, a loan for a home.
In 2010, the Dodd-Frank Act was signed into law, which prevented a similar situation because of more required industry oversight.
Lenders are much stricter about how they lend money to borrowers, and fewer borrowers are likely to end up in a sticky situation as a result.
In the year's first quarter, the median credit score for newly originated mortgages was 776. Almost 70% of new mortgage holders have a credit score of 760 or more.
As with anything, there’s no guarantee that things won’t go further south in the housing market in the coming months, but there are a lot of differences between 2022 and 2008 in this area.