Back to Blog
Instead, McBride believes it is much more likely that our present housing market will behave in a similar fashion to the 1979-1982 market, which basically saw a market cooldown without a crash in home prices or a large number of foreclosures. Adding, “I just don’t see how we can get cascading price declines.” “If prices went down 5%-10%, people would still have equity and very few people would be under distress,” says McBride. Today, homeowners have a lot more equity in their homes and can absorb a decrease in home prices without losing all their home equity. People couldn’t afford to pay mortgages that were worth more than their homes were worth, which led to a large number of foreclosures. Today, ARMs are regulated and have caps in place to prevent interest rates from increasing uncontrollably.Įventually, home prices dropped at the same time ARM interest rates started to rise. The 2008 bubble was characterized by homeowners with adjustable-rate loans with a loan to value ratio of 105% and 1% teaser rates, notes McBride. When those rates became adjustable and started increasing dramatically, many owners could no longer afford the monthly payments and went into foreclosure.īased on the fundamental underpinnings of today’s housing market, a market crash similar to the 2008 bubble bursting is highly unlikely, says Bill McBride, real estate analyst and author of the CalculatedRisk Newsletter. Loose regulations meant these same subprime borrowers were often sold alternate loan products such as adjustable-rate mortgages or even more exotic products such as those featuring balloon payments. This caused demand to boom, which in turn pushed home prices higher and led to investor speculation and overbuilding. In the years leading up to the 2008 collapse, deregulation in the financing industry led to easy access to credit for many homebuyers who would not have previously qualified for a loan. Why today’s market is different from the marker in 2008 However, those worried about a 2008-style housing bubble may be better served looking further back in time for how today’s market may play out. Most people remember the devastating effect the last housing collapse, including more than 6 million households that lost homes to foreclosure. The fear of a new bubble is understandable. In March, the Federal Reserve Bank of Dallas reported an increasing concern over the possibility of a bubble as home prices continued to increase at a fast pace. What’s more, in a recent survey by real estate brokerage Clever Real Estate, 45% of likely home sellers said they believe there is a housing bubble that might pop this year.Ĭoncerns over a housing bubble have been brewing for months. Only 30% of respondents in Gallup’s annual Economy and Personal Finance Poll said it was a good time to buy a house, a whopping 23 percentage point drop from last year. Experience a simple online mortgage loan process with zero commissions & lender fees and 24/7 support.Īs home values continue to rise at a double-digit pace, confidence in the housing market is eroding. Better is redefining the homeownership process.
0 Comments
Read More
Leave a Reply. |