Some people are telling me that there’s another real estate bubble on the horizon. If you’re reading this, chances are that you remember the housing bubble. You know,that was in the mid 2000s where home prices rose very fast and very high. But – then the prices crashed. However, for the most part, the housing industry has since recovered from the bubble.
What Burst the Bubble?
In my humble opinion, the whole situation was caused by making it too easy to get a mortgage. It seemed that all you needed was decent (not great, not good) credit. And if you could make a mirror fog up, you could get a mortgage. Back then, my son was 19. He was working as a waiter while he attended college. He qualified for a $900,000 mortgage! Why? Because he had a good credit score.
There were some dubious mortgage programs available at that time. Some mortgage programs available were stated income, no income verification and no document loans. However, my favorite was the under market rate interest mortgage, with interest only payments and negative amortization. With this mortgage the interest was added to the balloon payment. And all of these programs were combined with a five, seven or ten year balloon payment. The bulk of these mortgages went into foreclosure when the balloon payment became due. However, people were taking out these mortgages because housing prices were going up and they thought they could sell at a huge profit or refinance. Sadly, they were wrong.
What’s Different Today
The lending requirements after the crash became much more stringent. However, today’s requirements to qualify for a mortgage are lessening. The average credit score of borrowers is falling. And there are more programs available that require less than the traditional 20% down payment than ever. In fact, more buyers than ever are taking advantage of these programs.
However, the current lending standards are still much more stringent than they were in the mid 2000s. Borrowers still need to prove they have the income to pay the mortgage. And a good thing is that its a little easier to get a mortgage. We just don’t want it to get too much easier.
While prices for homes are rising, the conditions are very different than in the mid 2000s. We don’t think you’ll need to worry about another real estate bubble.
So if you want to get one of these easier mortgages and purchase a home, give us a call. Call Bunny and Art Reiman – Realtors.
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