- Kristi Norton
"Should I wait for the "bubble" to pop to buy a home?"
The idea that we are in a housing bubble like 2008 is off the mark but since rates have doubled in the past six months, many potential buyers are being scared away from the market, despite the fact that now there is significantly less competition from other buyers, and the prices have adjusted downward somewhat. There is a sense by some that the bubble that existed prior to the 2008 housing crash exists again today, which is not the case.
The current situation is markedly different. We have not seen the proliferation of wild lending practices that led to many homeowners purchasing homes they couldn't afford with little to no money down. Some homeowners were no longer able to pay their mortgages (many predatory loans of the time had large interest rate adjustments after a short fixed period resulting in huge increases in monthly payments) and decided to sell their homes to get out from under the huge loans. Unfortunately at the time, there were many people in the same boat plus a huge inventory of new construction coming together to equal more housing than there was need. The result was rapid home value depreciation. People weren't able to sell their homes to cover the outstanding mortgages, that plus many not having any "skin in the game" (none of their own money in the house because of pervasive low and no down payment loans at the time), meant people were more likely to walk away from their homes. Foreclosures spiked. Downward price pressure continued. The market crashed.
Why is today different? Credit tightening, equity, and demand.
Mortgage companies learned their lesson. The ones that survived that is. Today it is harder to qualify for a home loan than it was in the early 2000s when all you needed was a "credit score and a heartbeat". New regulations were put in place that require a borrower to show the ability to repay the loan unlike the heady bubble days of lore. The result? More home owners are able to pay their mortgages and there has been a great deal of equity gained in the past two years so those who are in trouble and need to sell, will rarely be upside down on their loans.
Demand is another key factor. There are more Americans than ever. Millennials are starting families and putting down roots. All of that, plus the lack of housing available creates a situation where there are not enough housing units for all the people who need homes. This will prevent the situation of the past in which houses sat unsold and prices spiraled downward. People still need homes. They still need to move for jobs or family. People grow up and want to move out of mom and dad's and get their own places. Demand will keep housing prices and sales from crashing.
All this is not to say that we aren't seeing a lot of changes in the market, because we are. What it is saying is that we are unlikely to see a crash anywhere near what we lived through in the early part of this century. It's still a good time to buy a home if you plan to live there a while and can ride out any ups and downs that may come along in the short term. There are also so creative (but not crazy and dangerous) loan options that can help people buy now while prices are a little softer and competition is down.
Your Realtor and your loan officer can help you determine what kinds of loans and homes are out there that will work for you. Don't hesitate to ask, you might be surprised at what you learn!