As the market changes, many worry that we’ll see a repeat of the “mortgage meltdown” from 2008. I’m here to tell you that, while the market may be bumpy for a while, there are signs in the real estate industry that indicate we’re not heading into another market crash.
The years before the 2008 mortgage crisis saw unprecedented home appreciation growth in most of the US. While we have seen substantial growth in home values nationwide over the past ten years, we have begun to see a slowing in growth –as opposed to the absolute freefall from jubilation to agony that occurred in the late 2000s.
The job market has remained strong, exceptionally strong in fact. Per the Department of Labor, our national unemployment rate is lower than it has been in decades. The last time the unemployment rate was this low was 1969 — that’s 50 years!
Whereas the late 2000s saw an exponential swelling of foreclosures, this year has seen the number decrease from a year ago. Through the first half of 2019, fewer than 0.25% (a quarter of one percent) of homes had a foreclosure filing. In 2008, that number was four times higher.
Interest rates are lower
The current interest rates are among the lowest they have ever been, hovering in the 3.50 – 3.75% range. Rates in recent years have touched this level for periods of time, generally heading back higher. Lower interest rates mean less money spent on a person’s mortgage, which is likely why people are saving more than they were before.
Homes with equity
As of the most recent US Census stats, the percent of homes that have no mortgage whatsoever has consistently risen since the mortgage crisis and is currently at it’s highest number, at 37.19% of all US homes. As opposed to the funloving 2000s when people were using their homes as personal ATMs, this number shows that more people are continuing to pay down their mortgage, or even making added payments to get the home paid off.
Additionally, the total amount of home equity has gone up 150% over the past 10 years, and is currently the highest it has ever been.
Household Median Income
How much people make is another imperative aspect to keep in mind. The median household income is higher than it was before the crash, and indeed is the highest it has ever been.
Use of the “5/1 ARM” Mortgage
Likely the most relied upon mortgage people took out in the 2000s was the 5/1 ARM (Adjustable Rate Mortgage). When homeowners began thinking that home values would never go down, greed naturally set in and people wanted the most flexibility of what to do with their presumed never-ending stream of money.
The 5/1 ARM is generally set up where the rate for the first five years is below the standard 30-year-fixed rate and adjusts thereafter. The percent of mortgages using this loan is down to roughly half of it’s use pre-meltdown.
Higher Savings Rate
The percent of people putting disposable income towards their savings is currently almost twice as high as it was throughout many of the years leading up to the mortgage crisis and resulting housing bust. This also means that if we experience a market crash or things otherwise become financially tight, more people will have savings to fall back on.
“All you needed was a pulse and an ID” is often said of the completely lax lending expectations leading up to the market crash, which played a part in the meltdown itself. Abuse of the Stated income, NINA, NINJA, and No Doc loans were among some of the more notorious products available. Indeed, some of them do still exist today but are not used nearly as much. Credit scores, personal income, assets, and outstanding loans are all taken much more into account these days (as they should be), vs. the just grab the bag of cash as you leave lender mentality of the 2000s.
Common thought is that the higher this rate, the better. People continue to want to own a home. The reality, however, is that over the last several decades the average has often rested around 63 – 64%. During the heyday pre-housing-collapse, it shot up as high as 69%. As of September 2019, we are back within the normal range.
Months of home supply
This is most often viewed as the ratio of homes for sale : homes sold. And yes, this has gone up from lower month’s supply in recent years. That said, it is substantially lower than it was in the years preceding the housing crash and resulting débâcle of a decade ago.
Final word: No market crash
The real estate market goes in cycles of 8 – 10 years of increases followed by some bumps in the road, and we are at the end of one of those cycles. People are also smarter with their money than they were in the 2000s, and many can recall firsthand how bad it was. We are seeing more of a normal market correction, which after enjoying several years of appreciation may still be a bitter pill. Nonetheless, the current major real estate signals suggest we’re not entering another market crash or housing crash.