3 Reasons Why We Are NOT Heading Toward Another Housing Crash

Almost DAILY I receive a call, text, email or Facebook or LinkedIn private message – “What is going on with the market? Are we headed towards another crash?” or “Is another recession in our near future?” or something akin to those questions. I can’t tell you how many people I have reminded NOT to listen to the ‘talking heads!’ Seriously, that’s all they are – they are speaking in general terms without any relevant data to back up their theories.

It’s very frustrating to an industry that is accustomed to combating the negatives, normally; we don’t need the help of the media or other ‘talking heads’ who truly have no clue just how local our industry really is.

With home prices softening a bit, I can understand, to some degree, that there may be a concern that we may be headed ‘toward the next housing crash.’ However, we are in a TOTALLY different market than we were during the bubble market we were in, twelve years ago.

Here are three key metrics that will explain why:

1. Home Prices
2. Mortgage Standards
3. Foreclosure Rates

HOME PRICES

A decade ago, home prices depreciated dramatically, losing about 29% of their value over a four-year period (2008-2012). Today, prices are not depreciating, rather the level of appreciation is simply decelerating.

Home values are no longer appreciating annually at a rate of 6-7%. However, they have still increased by more than 4% over the last year. Of the 100 experts reached for the latest Home Price Expectation Survey, 94 said home values would continue to appreciate through 2019. It will just occur at a slower & lower rate. This is great news for home buyers who are nearing being priced out of the market. In fact, many have been already and many more would be if the rate of appreciating continued at the fast pace it was over the past 3-4 years.

MORTGAGE STANDARDS

Many are concerned that lending institutions are again easing standards to a level that helped create the last housing bubble. However, there is absolutely NO proof that today’s standards are anywhere near as lenient as they were during the period leading up to the crash.

The Urban Institute’s Housing Finance Policy Center issues a quarterly index which,

“…measures the percentage of 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.”

Last month, their January Housing Credit Availability Index revealed:

“Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.”

FORECLOSURE INVENTORY

Within the last decade, distressed properties (foreclosures and short sales) made up 35% of all home sales. The Mortgage Bankers’ Association revealed just last week, that we currently have the lowest level of foreclosures in process since 1996 – less than 1%. That, to me, speaks the strongest to the point, we are nowhere near a recession.

Bottom Line

After using these three key housing metrics to compare today’s market to that of the last decade, it becomes crystal clear that the two markets are simply nothing alike. We are likely in the midst of a much-needed market correction, taking real estate to a more neutral market than the sellers’ market we have been experiencing since 2013.

© Debe Maxwell | The Maxwell House Group | RE/MAX Executive | CharlotteBroker@icloud.com | 3 Reasons Why We Are NOT Heading Toward Another Housing Crash