Are we headed for another housing market crash?
Real estate trends in 2021: Are we headed for another financial crash?
Real estate has been on an upward incline since the great recession. 2020 was one of the best years ever but many are asking themselves is this too good to be true? Are we headed for another crash. Fortunately, after analyzing the data available, all signs point to the conclusion that 2021 is nothing like 2008
Mortgage standards are much more rigid than they were in the early 2000’s.
Lenders are requiring much more stringent qualifications to get a mortgage today. Leading up to 2008 lenders were providing loans to unqualified home buyers resulting in upside down mortgages, they were taking on high levels of risk and substandard loans. Today, according to the Housing Credit Availability Index (HCAI) the amount of loans likely to default is under 5%. The risk assumption in the early 2000’s was closer to 13%.
Good news! We are well below our the pre-crisis level in 2021. Homeowners are in much more secure financial standing and loan default ratio remains low!
(Graph from Urban Institute 3/17/2021)
Homes are appreciating, and prices
are rising at a fast but reasonable pace
While prices are rising steadily and we have had outstanding home value growth in 2020, when you compare home appreciation to the years leading up to the housing bubble – we are nowhere near the chaotic spike that lead up to the recession.
In 2008 the market was flooded
with inventory. In 2021 we are experiencing
an inventory shortage across the country.
The early 2000’s was flush with inventory which in turn caused prices to go down. Today, we are greatly lacking actively listed homes and new construction which is resulting in further home value increases.
(Map provided by National Association of Realtors Homing Shortage Tracker 3/17/21)
We are experiencing low
levels of new construction.
Developers have been hesitant to build new construction any where near the scale of the early 2000’s. While new construction is slowly being developed it is not filling the gaps and definitely not being developed at a scale or pace that would create an over-abundance in the marketplace.
Yes home prices are going up –
but they still have not exceeded
an affordability threshold.
Low mortgage interest rates hovering below 3% have contributed to affordability in 2021. When a mortgage interest rate goes down average monthly payments follow suit. Leaving homeowners with much stronger footing and safe levels of income to mortgage ratios then the early 2000’s. In the early 2000’s wages were low, home prices were high and mortgage interest rates were over 6%.
Equity levels are high
and continue rising
People have retained equity in their homes this time around. Choosing to allow equity to accrue instead of tapping into it and cashing out. This reduces the chance of ending up in a negative equity situation or “upside down” if home prices do drop, homeowners are in a more secure and safe standing than they were in the early 2000’s. When half of all homeowners have 50% equity in their homes we are much less likely to end up in a situation that results in a stampede of distressed sales that leads to the panic experienced in the early 2000’s.
Final word on why
2021 is not 2008
Know the facts. When someone comes to you concerned that 2021 is 2008 all over again – ask them to show you the data. Then share the overwhelming amount of data that does exist that debunks the theory that 2021 is 2008 all over again.