Not Another Housing Crash
Is History Repeating Itself?
I’ve heard it said that history repeats itself. So, since I am A Realtor, I have to wonder if this means we will have another housing crash. After all, home prices are rising quickly, which is similar to the housing crash of the mid 2000s.
I don’t believe we will have another housing crash. The only similarity I see between todays’ market and the market of the mid 2000s is that home prices are rising. But there are a lot of differences, and these differences are the reason the market will not crash.
Today’s Economy Is Stronger
Today’s economy is stronger, we are creating more, and better, jobs. In the mid 2000s there was a lot of new construction. Today developers do not have the raw land available for large developments in the areas where we need housing. And the land that they can acquire is more expensive. Skilled labor is in short supply and material costs have risen.
But these were just contributing factors to the housing crash. The biggest culprit was the lending practices that were in effect in the mid 2000s.
In the mid 2000s it seemed that the entire mortgage application consisted of having a good credit score and proving that you were actually alive. It was not unusual for people with a good credit score to get approve for a mortgage, even if they had a minimum wage job. My son was approved for a $900,000 loan while he was in college and waiting tables.
But today’s lending practices are stricter. In addition to have a good, but not great, credit score, you also need to prove that your income is sufficient to be able to make the payments on the mortgage. The low, or no, documentation loans are a thing of the past. Government regulations require much more documentation. Mortgage companies no longer assign the home appraisal to their friend who will let any home appraise at the right price. The appraisals now go to random appraisers. And this has cleaned up this part of the industry.
These are the reasons why, in my humble opinion, we are not heading to another housing crash.
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