There is a bit of uncertainty in the housing market right now and many people are wondering if we are experiencing a slight dip or headed for a much larger correction. After 6 years of a hot housing market with large price increases year over year, the market is finally taking a breath and has shifted from a seller’s market to a balanced market.
There are many reasons we are NOT headed for a crash like we experienced in 2008. Here are the top 3:
- The most important reason is the huge difference in the mortgage standards leading up to 2008 crash vs. the years leading up to today (2019). Pre-2008 anyone with a good credit score (and a heartbeat) could qualify for a mortgage with a stated income loan- and with 0% down to boot. Buyers who could barely afford it were coming out of the wood works to speculate on a real estate investment. Today is much different. Congress outlawed stated income loans after the crash and all borrowers since 2008 can truly afford the loan they are getting. Also, many of the risky loan practices such as negative amortization loans have been eliminated. It was a painful process from 2008 to 2012 when the entire lending climate changed, but the change has made for a much stronger and more sustainable market.
- Currently unemployment is at record lows and wages are increasing. It is predicted to remain this way for many years to come. Increasing wages and slower housing appreciation will allow housing affordability to catch up and will strengthen the housing market.
- I know it sounds weird, but when markets are in a true bubble, the majority of people are blinded to it and do not think there is a bubble. The fact that so many people are worried and cautious disproves the theory that we are in a current bubble. It’s been too soon since the last bubble and it’s on everyone’s mind. It will take time for the masses to forget the havoc caused ten years ago and for the next generation of buyers to emerge. Markets go in cycles and the housing market has been proven by several economist to have an 18-year cycle between crashes (with very little exceptions over the past 200+ years). That puts the next major decline coming at around 2026.
The large yearly increases in housing prices experience for the past 6 years is likely slowing down, but prices will still increase at a slower pace. Most economists are predicting that housing prices will increase in the 2 to 4% range this year and next.
CoreLogic’s President and CEO Frank Martell recently said, “The slowing growth in home prices was inevitable in many respects as buyers pull back in the face of higher borrowing and ownership costs. As we head into 2019, we can expect continued strong employment growth and rising incomes which could support a reacceleration in home-price appreciation later this year.”
The CoreLogic HPI Forecast indicates that home prices will increase by 4.6 percent on a year-over-year basis from January 2019 to January 2020.
Spring is coming soon and that kicks off the home buying season through summer. The deals that are out there today will likely dry up and we will start to see gains again this summer. Only time will tell but I think right now presents an opportunity to purchase while it’s not a hot seller’s market. If you are thinking of purchasing a home this year in California check out our OC Buyer Program. We are offering $10,000 as an incentive when you get your home loan with us (our rates beat all the big banks and credit unions) along with using one of our Realtor partners. Check out the details at www.GrandLendingCA.com/OC-Buyer-Program
You can reach the author, Brian VerBurg, at brian@GrandLendingCA.com