Many people in the real estate and home finance industries are keeping a close eye on the housing market. For those who survived or revived their careers after the great recession of 2006, there is some hesitancy and fear of another housing crash leading to another worldwide recession. At the same time, stricter lending standards, low housing supply and lower than ever mortgage rates are supporting the current market as it continues its ascent in the realm of housing sales prices.
Most professionals and analysts don’t think another market crash is imminent, at the same time know the current trends cannot be sustained. Mixed with the turn of the pandemic in early 2020, the trends in 2021 are quite interesting and lead toward eventual market stability rather than a crash. Let’s look at some of these reasons.
Lending Standards and Practices
A lot of the blame for the 2006 recession was years of poor lending practices. The fallout led our government to make significant changes about mortgage lending. There are no longer loans for everyone, and all borrowers must meet income and asset expectations. With the advent of the Consumer Financial Protection Agency, these new regulations are enforced with severe penalties.
Listing Price Expectations
While many professional economists were shocked by the sales boom during the pandemic lockdown, it was a result of lifetime record low interest rates. Mortgage rates continue to be low into mid-2021 at under 4%. At the same time listing sales have increased to their highest levels since the recession. Additionally, the supply of available listings has created an upswing in prices and many markets are experiencing bidding wars. As interest rates slowly rise, price increases will start to level out and slow down.
Market Value and Equity
As listing prices have risen quite rapidly, this also provides a greater market value and higher equity for homeowners. This will often give homeowners incentive to remain in their home and provides an opportunity for refinancing or home equity loans. Homeowners on average gained nearly 27,000 in equity in 2020. Comparatively, in 2009, most homeowners had mortgage balances higher than their home’s market value.
The Pandemic Recession
During the height of the pandemic, and still today, many homeowners who lost their jobs and would otherwise be subject to foreclosure were instead protected by pandemic mortgage forbearance. In March 2021, it was reported that about 2.6 million homeowners were actively in a forbearance plan. As the economy and jobs continue to improve as we near the post-pandemic era, some have been able to continue their payments. The overall expected increase in foreclosures in 2021 will be near 200,000 up from only 31,000 in 2020 (an all-time low since the recession). Even so, 200,000 is just a drop in the bucket compared to the near 6 million foreclosures in 2007.
There are no magic answers when it comes to real estate. Only educated and informed decisions based on trends and comparisons of the past. As median home prices hit a national median price at $380,000 in May 2021, and homes are selling at record speeds with low interest rates, it is not likely a crash like the 2006 recession will occur. More likely, the market may start to level out and slow down slightly, so market demands are not so competitive.