Nearly a year ago, I stated that (1) a market crash was highly unlikely, (2) we won’t see the foreclosures that followed the 2008 recession, and (3) prices will remain stable. Click here to check out that blog post. All of these statements hold true. Let’s dive into foreclosures, specifically. During the height of the pandemic, when potential buyers were holding their breath in anticipation of the market crashing, my hypothesis was that we wouldn’t experience a surge in foreclosures because of the stricter lending regulations that followed the Great Recession.
Picture Oprah saying “You get a loan! You get a loan!” Now imagine that’s what was happening in the early 2000s. Plummeting interest rates prompted predatory lenders to swoop in offering nontraditional loans. While these loans fattened their pockets, it was at the expense of the banks that ultimately purchased the loans, as well as the homebuyers who wouldn’t have qualified for traditional mortgages. While it is hard to believe, buyers weren’t required to provide much proof of repayment means in order to obtain these risky loans. Furthermore, they were often lured in with low initial payments and deferred interest.
In today’s market, as a direct result of stricter regulations, mortgages are harder to obtain because lenders are ensuring that buyers are actually capable of paying the loan.
“That means homebuyers, especially those with less-than-stellar credit, face more hurdles qualifying for a mortgage than they did in the housing boom years. But the loans are safer, more transparent and actually take into account whether a buyer can afford to keep up with payments.”
Alex Veiga
Putting proper safeguards in place pertaining to income, credit, disclosures, etc. reduces the number of homebuyers unable to keep up with their mortgage payments. This knowledge, coupled with the mortgage forbearance options provided to homeowners at the height of the pandemic, resulted in my confidently advising potential homebuyers not to hold their breath waiting for foreclosures. It’s also important to note that, during the Great Recession, home values significantly decreased – a trend not present in the current real estate climate.
Not only are foreclosures nearing a record low, but some states (Alaska, Rhode Island, Utah, and Wyoming) are reporting no foreclosures at all. Another major factor not previously highlighted here is interest rates. As Jacob Channel shares here, many homeowners have mortgage rates under 5% making their monthly payments more manageable. Furthermore, strict lending standards means “people who get mortgages are less likely to default on them” than the loan holders in the pre-Great Recession days.
These low mortgage rates also contribute to the lower supply of available housing. If you had a mortgage loan with a 3% interest rate, it would take a lot of convincing to sale regardless of how much equity you have. Sellers not wanting to sell means less inventory, which contributes to the higher prices. Add this supply and demand equation to our list of reasons why the real estate market won’t crash.
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