FREEMAN: The market is very different from what it was during the housing crash 15 years ago

BOBBY FREEMAN: A recent survey found that many consumers believe a real estate bubble is starting to form. This sentiment is understandable, as year-over-year home price appreciation is still in the double digits. However, this market is very different from what it was during the housing crash 15 years ago. Here are four main reasons why today is nothing like last time.

BREVARD COUNTY, FLORIDA – A recent survey found that many consumers believe a real estate bubble is starting to form. This sentiment is understandable, as year-over-year home price appreciation is still in the double digits. However, this market is very different from what it was during the housing crash 15 years ago.

Here are four main reasons why today has nothing to do with the last time:

1. Homes aren’t unaffordable like they were during the housing boom

The affordability formula has three elements: the price of the house, the salary earned by the buyer and the mortgage rate available at the time. Conventional lending standards state that a buyer should not spend more than 28% of their gross income on their mortgage payment.

Fifteen years ago, prices were high, wages were low and mortgage rates were over 6%. Today, prices are still high. However, wages have risen and the mortgage rate, even after the recent spike, is still well below 6%. This means the average home buyer is paying less of their monthly income for their mortgage payment today than they did back then.

Affordability is not as strong as it was last year, but it is much better than it was during the boom. Here is a graph showing this difference:

Fifteen years ago, prices were high, wages were low and mortgage rates were over 6%. Today, prices are still high. However, wages have risen and the mortgage rate, even after the recent spike, is still well below 6%. This means the average home buyer is paying less of their monthly income for their mortgage payment today than they did back then. (Image by Bobby Freeman)

If the costs were so prohibitive, how did so many homes sell during the housing boom?

2. Mortgage standards were much more relaxed during the boom

During the housing bubble, it was much easier to get a mortgage than it is today. As an example, let’s look at the number of mortgages given to buyers with credit scores below 620. According to credit.org, a credit score between 550 and 619 is considered bad.

These buyers may still qualify for a mortgage with such a low credit score, but they are considered riskier borrowers. Here is a graph showing the volume of mortgages issued to buyers with a credit score below 620 during the housing boom, and the subsequent volume over the 14 years since.

Mortgage standards have nothing to do with the last time. Buyers who have acquired a mortgage in the last decade are much more qualified. Let’s see what this means for the future.

Here is a graph showing the volume of mortgages issued to buyers with a credit score below 620 during the housing boom, and the subsequent volume over the 14 years since. (Image by Bobby Freeman)

3. The foreclosure situation has nothing to do with what it was at the time of the accident

The most obvious difference is the number of homeowners facing foreclosure after the housing bubble burst. The Federal Reserve releases a report showing the number of consumers with a new foreclosure notice.

There’s no doubt that the 2020 and 2021 numbers are impacted by the forbearance program, which was created to help owners facing uncertainty during the pandemic. However, there are fewer than 800,000 owners left in the program today, and most of them will be able to work out a repayment plan with their banks.

Why are there so few foreclosures today? Today, owners are rich in equity, untapped.

As the housing bubble approached, some homeowners used their home as a personal ATM. Many immediately withdrew their capital once it had built up. When home values ​​began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage exceeded the value of their home.

Some of these households decided to move away from their homes, which led to a wave of distressed real estate listings (foreclosures and short sales), which sold at huge discounts, thus reducing the value of others. houses in the area.

Today there will be far from the same number of foreclosures that we saw during the accident. So what does this mean for the housing market?

Here are the numbers during the crash compared to today:

There’s no doubt that the 2020 and 2021 numbers are impacted by the forbearance program, which was created to help owners facing uncertainty during the pandemic. However, there are fewer than 800,000 owners left in the program today, and most of them will be able to work out a repayment plan with their banks. (Image by Bobby Freeman)

4. We don’t have a surplus of houses on the market – we have a shortage

The inventory supply required to maintain a normal real estate market is approximately six months. Anything more than that is a glut and will cause prices to depreciate. Anything less than this is a shortage and will lead to continued price appreciation.

As the following graph shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), causing prices to plummet. Today, there is a shortage of inventory, causing home values ​​to continue accelerating.

The inventory has nothing to do with the last time. Prices are rising because there is a strong demand for home ownership at the same time as there is a shortage of houses for sale.

The inventory supply required to maintain a normal real estate market is approximately six months. Anything more than that is a glut and will cause prices to depreciate. Anything less than this is a shortage and will lead to continued price appreciation. (Image by Bobby Freeman)

Conclusion

If you’re worried that we’re making the same mistakes that led to the housing crash, the graphs above show data and information to help ease your worries.

If you have any questions or are looking to buy or sell, please feel free to contact me anytime at 321-693-1694, Bobby Freeman with McCoy Freeman Real Estate.

ABOUT THE AUTHOR

Freeman, Jennifer McCoy and Nikki McCoy-Freeman are the family owners of the McCoy-Freeman Real Estate Group on Florida’s Space Coast. Together they have over 40 years of in-depth experience in all aspects of the real estate industry, have sold over $420 million, and are ranked in the top 1% of all realtors in Florida.

Bobby Freeman, a lifelong resident of Brevard County, has been one of the area’s top realtors for more than two decades. In his first year as an agent, Freeman received the Rising Star award from his brokers. Since then it has won numerous sales awards from some of the largest real estate companies in the world.

Freeman, Jennifer McCoy and Nikki McCoy-Freeman are the family owners of the McCoy-Freeman Real Estate Group on Florida’s Space Coast. Together they have over 40 years of in-depth experience in all aspects of the real estate industry, have sold over $420 million, and are ranked in the top 1% of all realtors in Florida.

McCoy-Freeman Group’s accomplishments include Certified Luxury Homes Marketer (CLHMS), Certified Distressed Property Experts (CDPE), Accredited Buyer’s Representative (ABR) and voted County’s Top Realtor by Brevard. The group has been featured in numerous news publications including CNN Money Magazine, CNNMoney.com, WFTV 9 News, News 13, WKMG News 6, Coastal Condo Living Magazine, Hot Retirement Towns Magazine, and SpaceCoastDaily.com.