Cullman Housing CRASH 2021

Lacey Kilpatrick
Lacey Kilpatrick
Published on August 13, 2021

Home prices continue to increase, while the number of homes available for sale remains at record lows…this has presented todays buyers and sellers with many challenges and it’s led to a lot of conversations around the “Housing Crash” or “the next bubble.” So, today I wanted to shed some light on this topic and give you my two cents.

Now if you ask 3 different people their opinions on the market, or housing crash, chances are you’re probably going to get 3 different answers. I’ve had this conversation on repeat lately…So many people are concerned that we’re going to experience another housing bubble like the one in 2006 leading to the housing crash in 2008. So I thought it was worth breaking down some data, looking at the facts, and then making an educated decision. 

So let’s start by looking at what happened back in 2006 at the beginning of the last housing crash. Back then, nearly everyone could qualify for a loan. There was predatory lending, high-risk loans, and lenient underwriting. They were literally giving money to every everyone that walked in and applied for a mortgage. If you look at the volume of mortgages that originated when a buyer had less than a 620 credit score in 2006, there was around $376B of mortgage loans, compare that to 2020 and there is only $74B. That’s a huge difference. Lenders were giving out mortgages that they ultimately knew borrowers could’t pay back. This is what really caused the last market crash. 

Another fact to consider is during the last housing bubble, as home prices increased, people refinancing their homes and pulled out large sums of cash. They were cashing that equity in like their home was an ATM, faster than you can say don’t you do it. Then when home prices began to fall, that caused them to spiral into a negative equity situation (where their mortgage was higher than the value of the house). 

Today, homeowners are still refinancing. Heck, I refinanced last year, but people are doing to take advantage of the great interest rates, and their being smart, instead of doing cash-out refinances. Now, homeowners are letting their equity build. The percentage of cash-out refinances (where the homeowner takes out at least 5% more than their original mortgage amount) is half of what is was in 2006. 

In todays market, the home price increase is strictly driven by basic economics (Supply & Demand). In 2006 people had FOMO (Fear of missing out) leading up to the housing bubble and that drove up buyer demand. Back then there was more than plenty homes for sale to meet buyers demand. In 2006 there was over seven months’ supply of existing housing inventory available. Today, that number is barely two months supply. I’m sure if you’re keeping up with the market…you’ve heard people talking about the struggles of finding a home in todays market….this is why. 

Builders also overbuilt during the bubble, but they pulled back significant over the next decade. That pullback is the major factor in the lack of available inventory today. There’s simply not enough homes to keep up with the current demand. 

This market is nothing like the run-up to 2006. But, if I were a buyer right now, is it scary to jump into the market when prices are going like this…of course it’s scary. But guess what risk equals reward. When I’m talking to my clients, I’m thinking long term. Interest rates are so low right now, your monthly payment is going to low. So if you hold this property for 7-10 years, which is the average length that Americans keep a home before they sell it, then really you’re in a safe zone because you can either sell your home down the road or you can keep it as a rental because your monthly payment is going to be so low. 

So in my humble opinion…I don’t think we’re in a bubble, I don’t think we’re going to experience a market crash. Now I’m not a fortune teller, but what I can tell you is this, over a long period of time, if you look at the housing prices, of course you’re gonna see values go up and down, but the overall trajectory of those values is a steady incline. So the questions is… are you gonna jump on the escalator now, or jump on it later when interest rates are going to be a little bit higher? It’s up to you, every person has their own comfort level. There’s always those that play it safe and then there’s those who like taking risk. Where ever you fall there’s no right or wrong answer.

If you have questions about today market and where you stand as a buyer or seller, please reach out. I love being a resource for my clients and setting them up for success.

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