Today’s sizzling housing market has generated fears of a housing nose-dive similar to the 2008 crash, as evidenced by a 2,450% spike in the search of “When is the housing market going to crash?” reported by Google. While the 2008 plummet was frightening – with nearly 9.3 million borrowers losing their homes to foreclosure and short sale – today’s market, while certainly hot with homes selling at top prices within days, is void of the factors that led to the 2008 collapse.
Today’s housing market will not dramatically fall as in 2008, but will cool eventually. Here’s why:
- Improved mortgage standards. In the time leading up to the 2008 crash, it was difficult to NOT get a mortgage. Subprime borrowers, those with spotty credit and income, still could get a mortgage despite the lack of a solid track record of making payments. Today, as a result of improvements in underwriting, technology, and quality controls, qualifying for a mortgage is tough. Our mortgage system is fundamentally sounder due to lessons learned in 2008.
- Shortage of homes on the market. During this past year, buyers have been hesitant to put their homes on the market amid pandemic fears, and many of those with lost jobs have taken advantage of mortgage forbearance programs to stay in their homes. These factors resulted in fewer homes on the market, increased competition for home buyers and higher prices. Compare this shortage with the run up to 2008, when there was an abundance of homes on the market. The resultant falling prices put many new homeowners underwater, causing them to lose their homes.
- Equity-rich homeowners. During the 2008 bubble, buyers were quick to pull the equity out of their homes, often to fund the purchase of a second or third home. As prices plummeted, many found themselves in a negative equity situation. They walked away from their homes, leading to a glut of foreclosures and short sales selling at huge discounts driving the market further down. Today, more than 50 percent of U.S. homeowners have over 50 percent equity because of higher home prices combined with homeowners not selling their homes or pulling out their equity,
- Increased demand. New Yorkers and Californians are moving to Florida in droves, attracted by less-expensive homes, sunshine and open spaces, and zero state income tax. The out-of-state influx further boosts competition and home prices.
The lead up to the crisis in 2008 was a result of the factors outlined above, in addition to recklessness on the part of financial institutions and homebuyers trying to get rich quick by flipping houses or simply trying to get into a home that was more than they could afford. In 2020, it seems that level heads are prevailing, and while the market will cool down, it won’t crash.
Chad Van Horn, Esq. and his team have built Van Horn Law Group, P.A. into the largest bankruptcy firm in Broward County based on the number of cases filed in the last 12 months*. Van Horn Law Group was ranked among Inc. magazine’s list of the 5000 fastest-growing, privately held companies for the past two years. Chad Van Horn is the author two bankruptcy books, Everything You Need to Know About Bankruptcy in Florida and The Debt Life.
