Many news headlines are comparing the current housing market to 2008 due to inflation and the recent housing boom. But don’t fret because many experts agree that the Great Recession is unlikely to be repeated in this current market.
One of the main reasons is that America’s housing market is in far better health now, thanks to the new lending regulations triggered by the Great Recession. Basically, the newly established rules put today’s borrowers on a more solid footing.
Let’s dig in a little deeper.
Currently, there are 2.5 million adjustable-rate mortgages, also known as ARMs, accounting for around 8% of all active mortgages. On record, this is the lowest volume. Right before the Great Recession happened, there were 13.1 million ARMs, representing 36% of all loans at that time. Because it represented such a significant amount of loans, any issues would cause widespread repercussions.
It’s important to note that, in the past, the underwriting on those types of mortgages wasn’t necessarily forthright, but new regulations after the Great Recession changed the rules.
Today, adjustable-rate mortgages are underwritten to their fully indexed interest, and above 80% of today’s ARM originations operate under a fixed rate for the first 7 to 10 years.
It’s also noteworthy that only about 1 million currently active ARM loans are set to reset. Whereas, in 2007, around ten million adjustable-rate mortgages were facing higher resets, significantly leading to the Great Recession.
There was also a housing bubble that contributed to the 2008 recession. A housing bubble, or real estate bubble, is a market condition in which housing prices rise beyond a reasonable price due to increased demand, emotional buying, and limited supply.
After the increased prices, the housing bubble will be followed by a huge decline in housing demand. Experts call it a bubble because the rapid increase in housing prices cannot continue forever, nor are the high home prices justified in the real estate market. Thus the housing bubble will eventually pop, and the house value will drop.
Keep in mind that housing bubbles are not like a hot real estate market. A bubble is a short, breakneck escalation in the housing market. On the other hand, a hot real estate market is constant and longer-term.
Unlike the previous housing boom, it can be said that the increase in housing prices since the start of the pandemic is justifiable. The U.S.A. demographics were already supporting the housing growth, and the desire to purchase a home grew bigger as people saved more and spent more time indoors. The lifestyle change caused by the pandemic caused many Americans to reevaluate their living arrangements.
One of the reasons why there is no bubble is because borrowers are less likely to be able to get a loan without a down payment, except for certain USDA & VA loans. Now, down payments can typically be covered by cash or other credits.
Second, qualifications involving expectations around credit scores are stricter nowadays.
Third, even though house demand has wavered in the past few months, it has remained relatively stable.
The higher down payment amounts and higher credit score requirements will help ensure that another housing bubble won’t happen again.
Experts agree that the 2022 housing market is fundamentally different compared to the one in 2008. So if you’re worried about getting ARMs or improving your credit score, you can take it easy because the housing market won’t crash again.
We've been helping customers afford the home of their dreams for many years and we love what we do.
Real Estate Broker – CA Department of Real Estate
License #01269597, NMLS #238166
5772 Bolsa Ave., Suite 250
Huntington Beach, California 92649
Phone: (714) 901-2301
Stratis Financial Corporation strives to ensure that its services are accessible to people with disabilities. Stratis Financial Corporation has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Stratis Financial Corporation makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows stratisfinancial.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Stratis Financial Corporation accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Stratis Financial Corporation continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Stratis Financial Corporation website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Stratis Financial Corporation website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: email@example.com