April 16, 2020 at 11:10am | Mac Rogers
Many are asking right now, are we headed for another housing crisis just like 2008? It's logical to ask since the devastation being caused by COVID-19 is being felt all over the world. Make no mistake about it, we are in a recession right now. Not only the US but the whole world.

Hey guys this is Mac with Albert Rogers Realty, here in Castro Valley CA.

During the 2008 housing crisis or Great Recession, many experienced financial hardships, lost homes, and lost their jobs. Here's a very important point I want to make. It was housing and mortgage that started that financial crisis event. What we are facing today is different. The shutdown of our economy is due to the coronovirus. This is an external health crisis.

Let's compare 2008 and our current situation and see what is different.

Here are 5 key points I want to highlight.
Number 1 is Appreciation.
Check the following graph. Compare the six years leading up to the crash and compare it with the six years leading up to where we are right now. The rate of appreciation prior to the crash was double of what we have been experiencing in the last six years. Even our 2017 number which was our highest appreciation that is lower than the lowest number before the housing crisis. Yes home prices keeps going up but not like back then.

Second point is Access to credit.
This is another very important distinction. Back in the mid 2000s underwriting guidelines was loose. It is not an understatement to say that anyone breathing and has a social security number can and did get a mortgage. Didn't mater if you could afford it. If you applied, there was a lender that would lend to you. Look at the following graph. This is the "Mortgage Credit Availability Index". It is used by the Mortgage Bankers Association. It's a gauge on how difficult it is to secure a loan. Basically the higher the index, the easier it is to get a loan; the lower the index, the harder it is. If you notice we are nowhere near the levels like back prior to the housing crash. This actually caused lenders to tightened their lending standards today so we don't get a repeat of 2008.

Third point I want to make is inventory or the Number of Homes for Sale.
Back in 2008 there was a flood of inventory for sale. That is not the case today. There is not enough homes for people who want to buy. Check out the our current levels compared to 2008. How tight is inventory? Even in markets across the country where it is relatively easier to buy a home, those markets are also experiencing low inventory.

Here's point number 4 and one of my favorite. How home owners used their home equity.
Now what do I mean by this? Prior to 2008 crash, home owners were doing cash-out refinances. A cash-out refinance is when a home owner say bought their house for $500,000 and then it appreciated say to $850,000. They would refinance their current loan and would get a portion of the equity as a cash out. Say originally they owed $400,000, on the cash-out refinance they would now owe $680,000. They now have $170,000 in cash burning in their pockets.

A majority of home owners spent this money on luxury items such as expensive cars, boats, lavish vacations etc. Look this is not an indictment or a shaming of how people use their money. I am merely pointing out how and what home owners were doing then compared to know. This is not the case today as this chart shows. I think most home owners have learned that their homes are not virtual ATMs that you can cash-out anytime you want. And by all indication people that are cashing out are not using it to finance their lifestyles.

Which brings us to my fifth point. There is gold and them houses. Or as we call it Home Equity.
In 2008 it was easier to walk away from houses because the homes were literally worthless. What the homeowners owed on the house was usually way more that what it was worth. That's why we had a flood of short sales and foreclosures. Today its a very different picture. With 53.8% of homes across the country having at least 50% equity, how can anyone walk away from that? You would literally be giving away money.

Look, the challenge we are facing right now is very different from 2008. You can call it COVID-19, coronavirus, what ever you call it, its a health crisis and not a housing one. Housing is in a strong position and may very well be the one that helps us get out of this downturn.

Hey if you are thinking of selling and would like a professional equity and market analysis of your home, click the link below and we will reach out to you.

Stay safe everyone. Have a great day.


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