This Is NOT a Housing Bubble
The housing market is definitely HOT but many leading economists say a crash is not imminent.
First let’s look at what caused the infamous housing crash of 2007-2008 (lasted into 2011) – I was actually one who lost their house during this time.
Anyway, the facts:
– Low Down Payments
– Flexible Mortgage Rates
– 40yr loans with ‘Pick A – Payment’ options aka negative amortization
– No documentation needed to prove income/money aka NINA or SISA loans (No Income No Assets / Stated Income Stated Assets)
What’s different in 2021?
The current combination of low inventory and high buyer demand means the risk of overbuilding is minimal. Also, NINA / SISA loans are pretty obsolete and proving your finances is a must along with more strict lending guidelines.
Existing Homes for Sale in 2021 (as of April 2021) 1.16 Million
Existing Homes for Sale in 2007 was 4 Million
Down Payments Are Up
More money down means more equity at the start. Leading up to the market crash in 2008, down payments were low.
In 2007, 45% of first time home buyers financed 100% of their home compared to only 17% in 2020
More Fixed-Rate Mortgages
Before 2008 market crash, more buyers gambled with adjustable-rate and fixed short term rate mortgages (rate would adjust every 6 months, 1-3-5-7 year(s) for the remaining portion of the loan).
Buyers with Adjustable vs Fixed Then Adjust to Mortgages
2020 = 4%
2007 = 15%
Lending Restrictions Are Tight
It’s harder to qualify for a mortgage you can’t afford. Assets need to be verified, etc.
Foreclosure fillings were extremely low in February in 2020 before pandemic forbearances.
– March 2008 = 234,685
– February 2020 = 48,004
– April 2021 = 11,810
Some areas are over inflated
I like to think of these areas like the ocean tide. There’s a high tide and low tide… as more home buyers move inland the demand increases (high tide), you have short supply therefore prices go up. However, when businesses start asking their employees to come back to work is when the commuter’s back starts to break.
This is when you’ll see rental prices start to increase since many families can only rent since homes are more expensive in relation to their job location (low tide).
*These numbers are from NAR and help collected by Brian Buffini & Co.