Today’s Real Estate Market vs. 2007-2008
Have you thought or heard that we are in for another real estate crash like the last one? Well why don’t we dig in a little bit to the numbers and see why it may not be so likely! If we go back to early 2004 – 2008 there were a whole different set of rules, practices and theories. During this time we had a lending standard that was just about as rogue and wild as they come. We saw loans that were sure to fail on their merits alone.
- Interest only loans were very
prevalent and widely used. This meant that people only had to qualify for what
the interest payment would be. Many of these loans were also adjustable, which
meant the interest rate could rise every 6 months or annually. So if you
started with a 3% interest rate you could potentially see a rise to 5% within
the year, 7% the next and so on. The loan would be interest only for 10 years
and then would revert to a 20 year amortorized loan that would be at times 3
times the original payment amount.
- To even put these loans on steroids
many lenders include this type of loan in a stated income loan. Stated income
meant they did not check how much money you really made they just took your
word on what you told them. I call these the decent credit and heart beat loan,
if you had those 2 things you were set to go.
- To add even more insult to injury
there were loans called negative am loans. Basically they would only charge you
part of what an interest only loan was and throw the negative amount on the
back of the loan to later be adjusted to a 20 year loan. Pure evil in my
opinion and sure fire way for default and foreclosure.
- With these kinds of loans and the
rate that they were building new homes the inventory was very high. We averaged
around 8 months worth of inventory throughout the year. We also saw price
increases hovering around 11 -13% annually. So when buying did slow down from
all of the previous predatory actions, the housing market was destined to fail
with inflated prices and larger than life inventories.
So you may ask what has changed in our current market. I would say a lot!
- First of all since the last crash the
lending institutions have put in standards that people must qualify under. They
make you produce your past 2 years of income tax returns, last 2 months of bank
statements, W2 forms, proof of income and job verification.
- Any money that is used for down
payment and closing expenses must be seasoned and verified as to where it came
from. (no more mattress money)
- The mass majority of loans are fixed
interest rate loans and interest only has been left it the past. (if you have
been or are offered something else… buyer beware)
- Unlike the last period we are only
seeing annual increases of around 4-5% which is healthy in the real estate
market. We have seen some market stabilization recently but not a down turn in
value. Homes priced right and in good condition sell fast.
- Inventory levels are really low right
now, in our market we only have about 1 ½ – 2 months worth of inventory.
Now even though we are seeing some disruption in economy due to COVID-19 homeowners should be in a much better place. If you must face selling vs foreclosure due to job loss, you may have equity that you can take with you. Should you find your self in this situation with job loss or lack of income see our blog above to learn about deferment vs forbearance. Get involved, get informed and gain the knowledge that you need to make solid decisions. If you need any other information, direction or would just like to discuss options contact us. Randy 602-910-7595 or [email protected]