Comparing the housing market of 2008 to today’s market is like comparing apples and oranges. There are similarities, but they are in no way equal, and that’s the problem with most people who are waiting for the market to crash.
The factors in 2008 that led to the great housing market (and the Great Recession) had a lot to do with foreclosures, and the foreclosure problem had a lot to do with lending practices.
In 2008, getting a mortgage was a lot like getting a lollipop at the bank when you were a kid. When you walked in and asked for one, they would give you one. Okay, maybe it was a little more difficult, but you didn’t have to fill out a lot of paperwork. The banks were offering loans up to 80 percent of a million dollars with little more than a credit check. If you had half-decent credit, you could take out a loan. This set a lot of people up for failure because they didn’t have the income or assets to cover the loans when problems came. Many people had to walk away from those loans, and because of that, many homes were foreclosed on during that time.
The second big reason for the housing crash in 2008 was how easy it was to cash out equity in your home. Many people were using their equity in their homes to purchase cars, boats, or any number of other things. This made the amount of money they owed on their homes more than what they could get for them if they sold them. Consequently, they were in deep trouble when they could no longer afford their houses.
How Things Are Different Now
First of all, mortgages are a lot harder to come by now than they were in 2008. If you’ve tried to get a loan recently, you know how difficult it can be. Home buyers now have to fill out lots of paperwork, proving they have funds in the bank, credit scores, a proper level of income, a proper debt to income ratio, and other important factors that qualify them for loans. While it’s obviously still possible to get a mortgage, the banks have evolved a lot over the last 15 years. They really scrutinize their clients to be sure the same things don’t happen as they did back then.
Secondly, more homeowners have equity in their houses, and they have not cashed out the equity. Current statistics tell us that more than 41% of home owners have at least 50% equity in their homes. The average equity in homes right now is over $300,000. People are enjoying the fact that they have equity in their homes, and they’re not walking away or cashing out.
These two factors, high qualification requirements and high equity in homes, are important indicators that foreclosures will continue to stay low, and home values should at least stay steady as long as there are not a lot of low priced homes on the market due to foreclosures.
So, if you’re waiting for a market crash like 2008, you might be waiting for a while.
What do you think? Is the market going to crash?