This is not like the 2007 crash

We’ve all been hearing that we’re in the middle of a real estate shift! But is this the same kind of market crash we saw back in 2007? On this months blog… we’re diving into it.

First off, I’d like to mention that this is not simply my personal opinion on the basis of a few client interactions… These data-driven insights will substantiate my reasons for this shift being remarkably different than the 2007 crash. Here are some of the facts:

Lending Guidelines have gotten a lot stricter

Lending guidelines have grown far tighter since 2007. There were people literally getting loans for pets in 2007, with the average credit score being around 600. Our current average score is now in the 750 range.

People have a lot more equity in their homes nowadays

A recent study concluded that only 2.5% of homeowners now have less than 10% of equity in their homes. Compare that with 2007, where around 35% of homeowners fell into this category, and this was before prices even started to fall. Homeowners sitting on a property with a 3-3.5% interest rate are unlikely to want to sell their property and give up that equity. Hence, it’s quite unlikely that we’ll see a home fire-sale just because of the speculation of a market crash. They’ll likely hold on, as real estate is widely known as the number one investment option for the average American citizen.

Availability of adjustable rate mortgages

Back in 2007, ARM loans made up 36% of all loans being used at the time. Right now, we’re all the way down to about 8%. Furthermore, most ARM loans have a 7-year locked rate with a 1 year adjustable rate after that. Most buyers took advantage of the 2-3.5% mortgage rate we’ve had in recent years which won’t adjust for another 5-6 years.

What could happen?

For one, inventory could start to creep back up. With higher interest rates, we’re seeing a lot of buyers back out of the market. However, that will bring us back into healthy market territory, as we simply could not sustain such high appreciation of 20% and upwards year over year. This should give buyers the time to really find a property they love, and force sellers to renovate their properties and not overprice them either. This could lead to inventory coming up and prices adjusting accordingly. If we do see a price adjustment, I don’t see how prices could dip more than 5%.

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