Another housing market crash has been a looming fear ever since 2008. With homeowners being financially impacted by COVID19 these fears are even higher. As of July 23rd there were 1.75 million homes still in forbearance. However, experts are hopeful due to the many lending regulations that were put into place after 2008, these should prevent another crash.
Mary Babinski, a Senior Loan Officer with Motto Mortgage Champions in Florida said, “It’s not that we’re not going to see any foreclosures, but I don’t think it will be an influx like before, because in 2008 people had loans they should have never been given, and also had adjustable rates with significant increases so their payments went up drastically and suddenly while property values generally were falling or staying stagnant.”
Three key differences seen between the 2008 crisis and today are:
1. Lending practices have changed significantly
In 2008 policies were far more relaxed. Lenders were finding different options for borrowers that were not setting them up for long term success. The creation of the Consumer Financial Protection Bureau (CFPB and various other lending regulations were put into place to help make sure borrowers aren’t setting themselves up for failure. The CFPB has been very involved during the pandemic creating additional resources and assistance to homeowners.
2. Borrower circumstances and attitudes toward their homes have changed
According to CoreLogic the average equity gained between Q1 2020 and Q1 2021 was $33,400. Scott Miller, an agent with RE/MAX of Boulder in Colorado said in 2008, “People were using their houses as an ATM. If they needed money for something, they just took it out of their equity. In some cases, they were taking out as much as 100-150% of their home value. Lending policies are now a lot more conservative, and people aren’t able to put themselves in an over-extended position as easily.”
3. The current housing market allows for more exit options
There is a high demand for housing right now. With low inventory available many homeowners who find themselves in financial difficulty have the option to sell their homes to help repay their mortgages and find alternative housing. Miller also believes the current low inventory is a result of the 2008 crisis saying, “Builders dramatically slowed building throughout the country coming out of the 2008 crisis, so we got behind on the new-home building inventory. They’ve never caught up.”