Posted September 26, 2022 in Blog / Education

2022 Housing Bubble?

Are we going to see a housing bubble?

Mainstream media will catch your attention with headlines that include terms like ‘housing bubble’ or ‘housing crash’. For those that remember The Great Recession of 2007-2009, we envision foreclosures due to an overinflated housing market and extremely loose lending requirements. Although we have experienced significant real estate appreciation since the start of the Covid 19 pandemic an extreme majority of homeowners are in a vastly different equity position. It’s very likely that we are going into or  in a recession but undoubtedly we are not going to see a housing bubble.

Here are some major differences between the housing environment from 2007 to 2022.

Then

Folks purchased homes with no down payment, low to marginal credit, and unverified income/assets. Many of these buyers were not in a financial position to afford the homes they purchased. Many could not afford the payments for an extended period or perhaps lost their job. Once home values decreased the homeowner was not in an equity position and could not sell the house without taking a loss. The only option was to foreclose.

Now

Lending guidelines are more regulated and require lenders to demonstrate the homebuyer has an ability to repay the loan. Homebuyers must meet stricter credit guidelines as well as document income and assets. Increased home values have created vast amounts of equity. Selling a home with a large net return is very probable.

 

Then

Home values were swiftly increasing at an unstainable pace for most of the country. Many investors hoped to purchase a home and almost immediately sell it for a net gain. Once the housing market crashed many of those investors were stuck with an overinflated value and many simply foreclosed vs making monthly payments.

Now

Nearly all homeowners today have purchased or refinanced their home in the past decade with historical low interest rates typically in the 2-4% range. This has created a budget friendly environment that allowed people to shorten the term of their mortgage creating enormous amounts of equity. Most homeowners will see a significant net gain on their home value even if there is a correction to value.

 

Then

Many folks saw buying and selling real estate as a vehicle to make fast money. Homeowners commonly flipped homes almost immediately after purchasing the home to take advantage of the equity with the swiftly increasing values and demand. Unregulated real estate activity played host to all sorts of fraud and deceitful practices. Deplorable lending practices allowed people to purchase multiple homes at a time which created even more risk and exposure to the housing market.

Now

Laws are in place to regulate real estate transactions and lending practices are stricter on house flipping, financing multiple properties at the same time, as well as cash out refinancing. These new laws and regulations were created to maintain a more stable housing market.

 

 

Jeff Buum
Branch Operations Manager

Fairway Independent Mortgage Corp., Heartland Branch