Some are asking, “Is today’s housing market in the same predicament that it was over a decade ago, when the 2007-08 crash caused the Great Recession?”
Short Answer: NO
The 2022 housing market is MUCH healthier today, thanks, in part, to new, stricter lending regulations that came out of the 2007-08 meltdown.
Reasons Short Answer IS NO
There are several reasons that the 2022 housing market is MUCH healthier today than it was during the meltdown of 2007-08:
- Credit Quality – Today’s 53.5M first lien home mortgages have home borrowers whose average FICO credit score is a record 751.1. In 2010, two years after the financial sector collapsed, the average home borrower’s credit score was 699. Clearly, lenders today are much more strict about their lending practices.
- Home Equity at Record High – Due to pandemic-fueled demand over the past two years, home prices have skyrocketed and homeowners now have record amounts of home equity. Tappable home equity hit a collective record high of $11T, according to Black Knight. This $11T in home equity represents an increase of +34% y/y.
- Total Mortgage Debt at Lowest on Record – Total mortgage debt in the US now stands at less than 43% of current home values, the lowest ever. Negative equity is essentially nonexistent with only 2.5% of borrowers having less than 10% equity in their homes. During 2011, three years past the 2007-08 meltdown, more than one in four borrowers were underwater with negative equity in their homes.
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Fewer “Risky” Loans
Currently, there are about 2.5M adjustable-rate mortgages, ARMs, that represent 8% of active mortgages. This 2.5M ARMs is the lowest volume on record.
During 2007, there were 13.1M ARMs, some 36% of all mortgages and the underwriting on those ARMS were “sketchy,” according to CNBC.
Today’s ARMS have been underwritten to their fully indexed interest rate. Also, more than 80% of today’s ARMs operate under a fixed rate for the first seven to 10 years.
Currently, 1.4M ARMs are facing higher rate resets; in 2007, about 10M ARMs were facing higher rate resets.
Mortgage Delinquencies Low
Under 3% of mortgages are now considered delinquent or past due, a record low. There are fewer past-due mortgages today than there were before the pandemic.
According to Andy Walden, vice president of enterprise research at Black Knight, “The mortgage market is on very historically strong footing. Even the millions of homeowners who availed themselves of forbearance during the pandemic have by and large been performing well since leaving their plans.”
Still tight lending standards remain in place today as, according to the Mortgage Bankers Association, mortgage credit availability is lower than it was just prior to the pandemic.
Home Affordability Considered Housing Market’s Biggest Problem
Black Knight has stated that home affordability is the housing market’s biggest problem. Currently, home affordability is considered to be at a record low in at least 44 major markets. Despite housing inventory beginning to rise, a direct relationship to affordability, housing supply remains about half of pre-pandemic levels.
“Rising inventory will eventually cool home price growth, but the double-digit pace has shown remarkable sticking power so far,” said the Chief Economist at Realtor.com Danielle Hale. “As higher housing costs begin to max out some buyers’ budgets, those who remain in the market can look forward to relatively less competitive conditions later in the year.”
Thanks to CNBC.
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