Why This Housing Market Isn't About To Collapse

 

Homeownership has become a critical component of realizing the American Dream. According to a recent research by the National Association of Realtors (NAR), over 86 percent of purchasers feel that homeownership remains the American Dream.

Prior to the 1950s, only around half of the population owned a home. After WWII, however, many returning veterans took use of the GI Bill's advantages to acquire a home. Since then, the percentage of homeowners in the United States has risen to 65.5 percent. Since then, the great desire to buy a home has kept property values rising.

Only during the housing boom and recession of 2006-2008 did home values fall dramatically. When you look at how prices skyrocketed previous to 2006, it looks a lot like what we've seen in the last two years. Some may be concerned that we'll experience a similar drop in property values as we did when the bubble burst. Let's take a look at what happened last time and what's going now to assist calm your nerves.

Foreclosures inundated the market in 2006. Home values plummeted as a result of this. The following were the two main causes of the foreclosure wave, this cycle continued for years.

1. Many buyers were not properly qualified for the mortgages they acquired, resulting in an increase in home foreclosures.

2. Several homeowners took advantage of the equity in their homes. They found themselves in an underwater scenario as prices dropped (where the home was worth less than the mortgage on the house). Many of these homeowners abandoned their properties, resulting in more foreclosures. This further decreased nearby home values.

Here are two reasons why today's market is not the same as it was 15 years ago.

1. Today, Demand for Homeownership Is Real (Not Artificially Generated). Banks created false demand in the years leading up to 2006 by lowering lending requirements and making it simple for almost anyone to qualify for a home loan or refinance their present home. Mortgage companies now have more stricter requirements for house buyers and refinancers.

When a bank lends money, there is always a risk. However, in the 15 years preceding up to the housing catastrophe, lending institutions took on far bigger risks in terms of both the person and the mortgage product offered. As a result, there were a lot of defaults, foreclosures, and declining prices.

Homeownership is in high demand today. It results from a re-evaluation of the value of home as a result of a global epidemic. Furthermore, in the current lending market, lending standards are substantially tougher. Purchasers can afford the mortgages they're taking out, so there's no need to be concerned about defaults.

If you're concerned about the amount of people who are still in forbearance, you should know that the housing market is now stable. There will be no foreclosures in the near future.

2. People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s. As previously said, many people believed that the price rises in the early 2000s would never stop. They began borrowing against their houses' equity to finance new vehicles, boats, and holidays. Many of these homeowners were underwater as prices began to fall, leading to some abandonment. As a result, the number of foreclosures increased. 

As prices have soared in recent years, homeowners have not forgotten the lessons of the catastrophe. Tappable equity (the amount of equity available for homeowners to access before reaching a maximum loan-to-value ratio, or LTV) has more than doubled since 2006 ($4.6 trillion to $9.9 trillion), according to Black Knight.

According to CoreLogic's latest Homeowner Equity Insights study, the average homeowner has earned $55,300 in home equity in the last year.

According to ATTOM Data Services, 41.9 percent of all mortgaged properties have at least 50% equity. Even if prices decline marginally, these homeowners will not be underwater. Homeowners today are much more careful.

Call Vanna Siackhasone at (907) 720-4663‬ to assist you if you need expert guidance on your individual situation and when to buy a house in Alaska.