Are We Repeating the Housing Bubble of 2008?

Thursday, March 18, 2021   /   by Taryn Schaldach

Are We Repeating the Housing Bubble of 2008?

This pandemic housing boom is the strongest we have seen in more than a decade. The median sales price for existing homes in more than 180 metro areas was tracked by the National Association of Realtors, where they say numbers rose in the fourth quarter compared to the year prior. That is the second consecutive quarter that every metro area tracked by NAR posted an annual increase. It is the first time this has happened in back-to-back quarters.

What Does This Mean For Buyers?

Demand for homes has surged over this past year, as buyers took advantage of the record-low interest rates. The pandemic prompted many households to seek bigger houses that could better accommodate remote work. Home sales in 2020 rose 5.6% to the highest pace since 2006, according to the NAR.


Last time we last saw a housing boom similar to this, was back in 2006. Then, buyers were trading up to bigger, more expensive homes after just a year. Many home buyers were paying very small down payments, if any at all. When housing prices finally stopped rising, the market collapsed. Come 2009, Real Estate Agents were working with clients who were desperate to sell the homes they had just bought.


Currently, this housing market is unlike anything we have seen before. Buyers now have higher credit scores and are able to put more cash up front. Lenders have proven through the course of the pandemic, that they are willing to work with borrowers who are worried about job stability or expensive medical bills, in order to avoid a future foreclosure crisis.


What is Different About Then vs. Now?

During the housing bubble of 2006, it was difficult NOT to get a mortgage. Today, it is more difficult to qualify. The Urban Institute recently released their latest Housing Credit Availability Index (HCAI) which “measures the percentage of owner-occupied home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.” The index shows that lenders were comfortable taking on high levels of risk during the housing boom of 2004-2006. It also reveals that today, the HCAI is under 5 percent, which is the lowest it’s been since the introduction of the index.

Should I Have Confidence in This Market?

Yes, supply is low. One of the main contributors to the number of homes on the market, is the fact that many homeowners are choosing not to relocate if they're already in a house that has plenty of space for remote work and virtual schooling. This may not be the case for you. Now that you are home more often, you may find your home just doesn’t fit your needs. Low mortgage rates can be an incentive to buy, however, these low rates won’t last forever. If you have thought about making the move, now would be a great time. While home prices have risen and supply is low, low mortgage rates will ensure your monthly payments stay where you are comfortable. Based on the 50-year symbiotic relationship between treasury rates and mortgage rates, it appears mortgage rates could be headed up later this year. It may make sense to buy now rather than wait.

Whether you’re a first-time buyer or have purchased a home before, an increase of just half a point in a mortgage rate (2.81 to 3.31%) makes a big difference. On a $300,000 mortgage, that difference (including principal and interest) is $82 a month, $984 a year, or a total of $29,520 over the span of the home loan. Locking in a low rate today could save you thousands of dollars over the lifetime of your loan.

 

Bottom Line

This time, housing supply is at a historic low. Demand is factual and rightly motivated. Lenders are realistic and accountable. Even if there were a drop in prices, homeowners now have equity to be able to weather a dip in home values. This is nothing like 2008, and is in fact, quite the opposite. If you have questions or are unsure if this is the right time for you, we are happy to help you navigate your choices.

Sine & Monaghan, Realtors Real Living
Grosse Pointe
18412 Mack Ave
Grosse Pointe Farms, MI 48236
313-884-7000
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Royal Oak
30574 Woodward Avenue
Royal Oak, MI 48073
248-549-7400
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Saint Clair
201 N. Riverside Avenue
Saint Clair, MI 48079
810-329-9001
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Algonac
4181 Pointe Tremble
Algonac, MI 48001
810-794-5544
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