Op Ed: Is The Real Estate Market Due For Another Crash?
OpEd: Is The Real Estate Market Due For Another Crash?
We get asked all the time about the state of the real estate market and whether a housing market crash is destined. Is there a housing bubble forming and, if so, when will it burst? We thought it might be helpful to share some of our insights, as a way to give you some context for the market we are in currently and what the future might hold for it.
As a reminder… we are not economists! As RealtorsTM, we have watched the housing market closely for years, and we are basing our predictions on our experiences and observations. Please consult with a financial expert before making any investment or financial decisions. That being said, let’s get rolling!
How is this market different from 2008?
Last year, we braced ourselves for a 2008 housing crash, but so far, we’re seeing notable differences.
The main observable problem that contributed to the 2008 crash was lax, irresponsible lending practices. Mortgage lenders were providing adjustable-rate mortgages (ARM) to people with no verifiable income, job, or assets. ARM loans lock the interest rate agreed to upon purchase for anywhere from one to ten years (depending on the lender). Once this initial period passes, the interest rate adjusts every year, which can be a high risk for someone who doesn’t have additional income to account for an increased interest rate.
Approving ARMs for people who otherwise did not qualify for traditional mortgages was one major factor in the 2008 market crash. When the economy crashed, there was a sudden influx of foreclosures homes, as a result of homeowners being unable to make their payments. These properties were frequently put on the market with deferred maintenance. A number of these homes stayed on the market for years… some of which are still on the market today.
Luckily, we have learned from our mistakes! Stricter policies have been created around lending in the last 13 years to help prevent a crash for this reason, again. In 2008, 60% of loans were tied to adjustable rates — now it’s a mere 1%! Even as the population struggles with joblessness mid/post-pandemic, their homes are not as impacted by the change in rates.
In addition, lenders are more stringently reviewing self-employed income to ensure it is consistent enough to qualify for the loan being applied for. To qualify, lenders will be looking for a credit score of at least 500, proof of income, and examining the applicant’s debt-to-income ratio.
Forbearance vs. Foreclosures
Lenders now prefer forbearance versus foreclosures when a homeowner has difficulty making payments. The banks don’t want to experience another wave of foreclosures on properties due to the same reasons as the last wave, so they prefer to try and assist homeowners to stay in their homes. Forbearance mortgages are designed to assist homeowners who are struggling to make monthly payments by effectively deferring those payments to a later date.
We don’t often recommend the forbearance route as these missed payments are added on to future payments or called due at the end of the forbearance period, which can exponentially increase monthly mortgage costs.
If you or someone you know is interested in pursuing forbearance, please don’t hesitate to contact us, and we will be more than happy to direct you to one of our trusted lenders for key insight and advice on the potential pros and cons.
A Seller’s Market
For the city of Portland, 2021 brought a massive influx of millennial buyers and buyers from feeder cities. Plus, with so many people working from home and saving extra income, many are considering buying a first home or investing in an additional property. Interest rates have remained at 2-3% throughout the course of the pandemic, and we are not seeing any indication of these rates increasing in the immediate future.
As the population continues to work from home, people are moving to their dream city… Portland! Head over to our blog on feeder cities for the full scoop on the influx of newcomers to Portland and what makes this city so desirable!
Everyone wants to buy! So, in a market with eager buyers, where are the sellers? During the pandemic, people became nervous about putting their homes on the market and inviting strangers to view their homes. This fear has lingered and we expect to see lasting effects on home listings for a while. The lockdown was also (seemingly) an ideal time for home renovations and constructing new housing. However, once lumber costs skyrocketed, construction stalled...
Long story short…everyone wants to buy, but with limited homes (new and old) on the market, competition is fierce.
Will Costs Continue to Rise?
The simple answer is, no — we expect the market to level out in the near future! Going forward, we expect the cost of housing to remain at this rate as long as buyer interest holds steady. Our hypothesis is that (within 2-3 years) the market will level out, but we do not expect to see a significant drop any time soon.
So… should we be prepping for another housing bubble burst? We don’t think so. But the market sure is competitive. If you are interested in buying a home, your most important tool is a market expert who will set up a competitive offer and guide you towards a successful sale. We are excited to guide you through this unique market. Reach out here!