My wife and I are planning to begin the house-hunting phase of our life soon, but there is a question we keep asking ourselves. With all that is going on in the world right now, will the housing market collapse again? Are prices going to sink to all time lows and revert back to 2008? Not likely.
Unemployment has reached record highs and is expected to remain high for the unforeseeable future. Without a vaccine, our world will most likely continue to remain in this state. Home sellers are hesitant to hold open houses in fear of bring in the virus and most don’t even want to risk leaving their house. Everything seems to be at a standstill.
If we want to determine the state our housing market is heading, it’s important to look at historical data from 2008. I recently watched The Big Short again, so this is all fresh in my mind. The Great Recession was caused by a few leading factors, such as bad mortgages, widespread house flipping and overbuilding. The housing market was over-saturated with For Sale signs and when the market crashed, there was no one around to buy them. To add to that, massive roll out of foreclosures and bad loans caused house prices to drop significantly.
Looking at today, things are definitely uncertain. This virus is a wildcard. There is no timeline for when a vaccine will be found and put everything back under control. Unemployment numbers are staggering and experts are speculating it may go even higher. This causes a domino effect in homeowners having difficulties paying their mortgage or rent. About 6% of mortgages went into forbearance as of April 12th. This was one of the pillars of the financial crisis 12 years ago. Will it happen again?
A key difference today is the difficulty of procuring a mortgage from a bank now. Credit scores need to be perfect and down payments higher. Banks are no longer playing Oprah and giving out houses.
A likely scenario would be house prices remaining the same, no longer continuing its spike increase. Inventory is low and may remain low until people are more comfortable with the idea of strangers walking around during an Open House. Others just don’t want to waste their time putting a house on the market to just sit and wait. Many are just waiting for the world to go back to normal.
But what happens when the world returns from isolation? Will the market instantly rebound better than ever? It’s interesting to see the Millennial generation is considered the unluckiest generation. They were hit the hardest in this situation, with the highest unemployment percentages. Important milestones are projected to be pushed back significantly like retirement and purchasing their first home. So when the world opens up again, will there be people lining up to buy homes? The answer is a resounding yes.
A large percentage of millennials may be greatly hindered by this current world crisis, but buying up what little amount of housing is available will go quick. We can expect prices to continue rising and the banking regulations to remain strict in their lending policies.
What if it collapses?
There are many uncertainties around our future, but experts are confident the housing market will remain strong. But what if it doesn’t? What happens then?
If it collapses, much like the 2008 real estate crash, we can expect to see the house prices fall, interest rates remain low and an inventory of housing will open up due to all the foreclosures. For those with money in hand, ready to buy, this seems like a dream, but for most of Americans, it’s a nightmare.
Banks have learned their lesson since last time and it’s probable they will stick to their current policies to prevent adding fuel to the fire. Higher credit scores and a larger down payment will still be mandatory in most states, even if the housing market goes down.
Conclusion
Most evidence points to a “stable” real estate market, despite the low inventory and high prices. Banks have learned their lesson from past deeds, but the future remains uncertain if something may crumble. I say the real estate market will continue to be stable, but will it remain so? The epidemic creates many variables we can’t predict and at some point we just need to hope for the best.
My money is on everything remaining the same for the short term. With a down payment, good credit score and a decent location, I’m ready to buy a house. No matter what the market may look like.
