By Shelley Sakala, Realtor
Cautious homeowners with long memories are viewing the surge in home values with an understandable measure of concern. The real estate crisis of 2008 left so many people nursing their financial wounds that any hint of a downturn in today’s housing market brings back feelings of panic from 13 years ago. In other words, people are wondering if we’re getting ready for a repeat of the dreaded real estate bubble.
According to the experts, the answer is NO. Here are three reasons why:
- Many of the problems of 2008 stemmed from bad lending practices such as stated income loans. America’s big mistake during the housing bubble was “…the rush to lend money to homebuyers without regard for their ability to repay,” says Susan Wachter, a real estate professor at the Wharton School of Business. That same freewheeling approach to lending does not exist today.
- Lenders have clamped down on investor mischief. Unlike the typical homeowner who is motivated to meet his/her mortgage obligations, many investors in years past bought multiple homes with no downside risk. If the market were to collapse, they could simply walk away from that second or third home without worrying. And that’s exactly what happened. Banks are now properly vetting the credit worthiness of borrowers, ensuring there is more protection in the event of a loan default.
- The current frenzy of homebuying activity has been tempered by low inventory and rising values of homes. Cash offers are commonplace, eliminating risks associated with loan default. And in the event a homeowner is unable to meet his/her financial obligations, that home can still be sold at a premium. During the bubble these houses would have otherwise gone to foreclosure, further contributing to the problem.
During the bubble, declining home values fell even faster and further as waves of foreclosed properties hit the market. Local lending professional Josh Heape of Canopy Mortgage explains what homeowners experienced in the 2008 real estate crisis: “Imagine sitting in a boat that was already sinking…and then someone drops a piano into your boat. Or five pianos. That’s what it felt like for people watching their home values decline. Thankfully, the potential for that type of downward pressure has now been minimized through changes made by lending institutions.”
While the current rise in home values may seem a little fast for some people’s comfort zones, the experts at Fannie Mae, Freddie Mac, and the Mortgage Bankers Association are predicting overall home appreciation in the area of 2-3% for this year. The market may cool off a bit this year. But a “bubble?” Not even close.
Shelley Sakala is a local Realtor with The Sakala Group.