1. Lenders stopped being so lax
Blame it on the banks. A huge contributor to the housing crisis in 2008 was dicey lending practices within the financial industry. Years of deregulation made it easier — and more profitable — to hand out risky loans.
The Dodd-Frank Act, which was signed into law in 2010 aimed to prevent that by increasing oversight in the industry.
While the act’s effectiveness has been called into question over the years, it has undoubtedly forced lenders to be stricter about their lending practices, which means far fewer borrowers are likely to land in hot water.
The median credit score of newly originated mortgages was 773 in the second quarter of the year, according to the Federal Reserve Bank of New York. And 65% of new borrowers had credit scores of 760 or more.
The median is down from a series high the quarter before, but the Fed added in its quarterly analysis that, “credit scores on newly originated mortgages remain very high and reflect continuing high lending standards.”
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2. Homeowners are doing fine
The onset of the pandemic could have been catastrophic for the housing market if millions of homeowners had no choice but to default on their loans.
Fortunately, mortgage forbearance programs allowed struggling borrowers to pause their payments until they could get back on their feet. And it worked: by the end of June, the share of mortgage balances 90-plus days past due remained at 0.5% — a historic low.
And compared to 2010, when delinquencies on single-family homes hit a 30-year high of 11.36%, the rate was just 2.13% in the first quarter of 2022.
As of June, 2.7% of outstanding debt was in some stage of delinquency, amounting to $435 billion in arrears. That may sound like a lot, but it’s a decline of two percentage points from pre-pandemic numbers.
On top of that, rising home prices has translated into increased equity for homeowners. Although home prices have started to decline slightly, by the end of the second quarter, mortgage holders held $11.5 trillion in tappable equity — a 10th consecutive high, according to Black Knight, a mortgage technology and data provider.
And even as the numbers reflect the real estate market may be slowing, Black Knight added that the “market is on strong footing to weather a correction” given that the total market leverage (including both first and second liens) was just 42% of mortgaged homes’ values — the lowest number on record.
3. There’s still plenty of supply
“It’s not always as simple as supply and demand — but it almost always is,” host Dave Ramsey said on The Ramsey Show back in June.
Ramsey says the major issue in 2008 was there was a “tremendous oversupply because foreclosures went everywhere and the market just froze.” The crisis wasn’t down to the economy or interest rates, it was “a real estate panic.”
In comparison, now, there’s a huge demand and a shortage of supply. But the Federal Reserve’s efforts to dampen demand by raising interest rates is starting to work. And new housing is starting to slowly come on the market as well.
Ramsey’s position hasn’t changed in the months since. In a blog post in mid-October, he addressed the question of whether the country is now in a housing recession.
“What we’re really seeing now is home sales volume returning to normal, pre-pandemic levels,” Ramsey wrote. “In other words, this is more of a housing market correction than a recession.”
He doesn’t discourage readers from trying to buy now, in fact, he offered a bit of encouragement: “If you’re looking to buy, you’ll have a few more options—and maybe less competition. It might still take longer to save a down payment or find your dream home, but the frenzy is slowing down.”
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