As the housing market finally starts to cool, some experts have repeatedly sounded the alarm for an incoming crash not unlike 2008.
However, evidence is starting to pile up that despite the unknowns, whatever is happening now is a lot different from then.
According to market experts, the news is conflicting. Rising mortgage rates are continually pushing more and more buyers out of the marketplace, and lenders are being laid off en masse as a result.
Some experts say this means demand will collapse, effectively bursting the housing bubble.
But many others are erring on the side of a gradual slowdown of price gains, which they say is much different than a sudden drop in prices.
According to Yahoo! Finance, here are three reasons today’s market differs from the last downturn:
- Lenders have much stricter practices, thanks to the Dodd-Frank Act signed in 2010
- Mortgage forbearance programs during the pandemic prevented millions of homeowners from defaulting on their loans, and high amounts of equity from increasing home prices gave borrowers access to additional cash
- In 2008, there was lack of demand and too much supply, while today, there’s strong demand and a lack of supply
The risk of recession comes as the Federal Reserve continues to increase interest rates in efforts to curb inflation.
One consequence of increased interest rates is a reduction in home demand and new construction activity.
Mark Zandi, chief economist at Moody’s Analytics, told The New York Times that the idea is to “bend” the housing market to curb inflation, but not to break it. Breaking it would trigger a recession.
Existing home sales continue to fall as prices remain at record highs. Experts say it could take a while for prices to begin to fall — if they ever do — but the decreasing demand should do what it’s supposed to do: allow supply to catch up.
Ed Pinto, director of the American Enterprise Institute’s Housing Center, told Fortune that he believes there will be a shift from a “gangbusters sellers’ market” to a modest sellers’ market.
However, he said a greater increase in interest rates, plus high jobless rates resulting from a recession, could definitely drop prices.
But most experts are expecting a gradual slowdown of price increases first.
In efforts to keep loan products stocked, mortgage experts suggest lenders seek out “alternative” lending products that have dropped in popularity over the years but are making a comeback as other options become unreasonable.
These products include home equity loans and home equity lines of credit (HELOCs) to help borrowers tap into equity without giving up their current mortgage rate, and adjustable-rate mortgages to provide borrowers with a lower initial rate than fixed-rate loans.
Photo by David McBee