Is This 2007-2010 Part 2? ....NO!

Is this current housing re-balancing going to repeat the 2007-10 housing crash? VERY, very unlikely! Why? Here are some very astute pointers (many from CNBC)....plus some additional observations....

1. New lending regulations that resulted from that meltdown put today’s borrowers on far firmer footing. Of the 53.5 million first lien home mortgages in the USA today, the average borrower FICO credit score is a record high 751. It was 699 in 2010, 2 years after the financial sector’s meltdown. Lenders have been much more strict about lending, much of that reflected in credit quality.

2. Today’s homeowners have record amounts of home equity. Tappable equity hit a record high of $11 trillion collectively this year, a 34% increase from 2021.

3. Mortgage debt in the US is now less than 43% of current home values, the lowest on record. Negative equity is virtually nonexistent. 25% of borrowers who were under water in 2011. Now just 2.5% of borrowers have less than 10% equity in their homes. 

4. There are currently 2.5 million adjustable-rate mortgages (ARMS) outstanding today...about 8% of active mortgages, the lowest volume on record. In 2007, just before the housing market crash, there were 13.1 million ARMs, representing 36% of all mortgages. More than 80% of today’s ARM originations also operate under a fixed rate for the first 7-10 years.

5. While 1.4 million Adjustable Rate Mortgages are currently facing higher rate resets, those borrowers will have to make higher monthly payments. In 2007, about 10 million ARMs were facing higher resets.

6. Mortgage delinquencies are now at a record low, with just under 3% of mortgages past due.

7. Some markets did not experience irrationally exuberant price escalations and are less prone to irrationally exuberant/exaggerated declines

8. Often the best properties took their owners years to find, secure and buy. Often these owners simply don't sell in weaker markets. This is a moment to focus on QUALITY. 'Bargains' may be a-coming, but there is one thing worse than finding a bargain.....owing it!

9. Now - more than ever - the value and importance of a professional, ethical, informed real estate agent/advisor is being highlighted. Every buyer and seller has different circumstances and objectives: tailoring a curated strategy - fueled by accurate, real-time insights, data and intelligence - is the key to smart decision making. Real estate varies considerably from building to building, block to block, house to house. Every city, town and village has its own unique attributes and circumstances. Comprehensive knowledge is the only way to structure informed strategies.

10. Most wealthier borrowers do not take out 30-year fixed rate mortgages. Many are all cash buyers. Shorter term and interest-only mortgages are cheaper. And the rates on the coasts are lower too. High credit scores and relationship banking helps too. Most people stay in a home for around 13 years or less.

So while rising interest rates are almost certain to rebalance overly frothy areas of the real estate markets - never forgetting that real estate is hyper-localized - I don't see too many parallels with 2007-2010. Additionally, some increases in interest rates may be offset by the fact that higher interest rates = higher interest payments = bigger tax deductions. Those tax savings could reduce some of the burden. With state coffers at all time highs, now would be a good time to reduce real estate taxes to help ease the burden of higher mortgage rates.