With all of the unanswered questions caused by Covid-19, many are asking if the housing market is in trouble as many of us remember the housing crisis of 2008 all too well.
Today’s challenge is very different from that of 2008. We today are experiencing a health crisis that has caused a temporary pause in much of the economy. Let’s take a look at 5 things we know about today’s housing market that were different in 2008.
1. Home Value Appreciation – Nationally speaking, 6 years prior to 2008 home appreciation rates were substantially higher than that of the last 6 years. There was a false buyer demand caused by creative financing options and appeared home values were over inflated.
2. Creative Financing – The Mortgage Credit Availability Index gauges the level of difficulty to secure a loan. The higher the index, the easier it is to get a loan. In 2004-2007 the index measured 868.7, while today it is at 152.1 per Mortgage Bankers Association. It is much harder to get a loan today.
3. Inventory – 2006-2010 there were upwards of 13 months of homes for sale which deems a very strong buyer’s market. Buyer’s market pushes home values downward. Today we have just 2 months of inventory in Ottawa County per GRAR. This low inventory deems a very strong seller’s market. Seller’s market pushes home values upward.
4. Use of home Equity – In 2005-2007 consumers were harvesting equity from their homes through cash-out refinances and using it to finance their lifestyles. Today consumers are treating the equity in their homes much more cautiously. Freddie Mac stats show that in 2008, 824 billion dollars was cashed out equity, today we are at just a ¼ of that with only 232 billion.
5. Home Equity – Today 53.8% of homes across the country have at least 50% equity. In 2008, homeowners walked away from their homes because they owed more than what their home was worth. According to Bloomberg 37% of all homes are owned free and clear. ATTOM Data shares that 26.7% of mortgaged homes have at least 50% equity. We are sitting on a tremendous amount of equity today vs 2008.
6. Locally – 1,327 homes have gone under contract in West Michigan between March 24th, 2020 when we began stay at home orders through May 1, 2020. Holland, West Ottawa, Zeeland and Hudsonville school districts have seen 115 homes go under contract per Flex MLS stats. Virtual home buying and selling is the new way and many consumers are taking advantage of the opportunity in the market right now.
The Covid-19 crisis is causing different challenges than the ones we faced in 2008. 2008 was a housing crisis, today we face a health crisis.
What we know is that housing is in a much stronger position today than it was in 2008. It is not the center of the economic slowdown but rather, it could be just what helps pull us out of the downturn.
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