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Time to Worry That Real Estate Will Crash Like it Did in 2008?

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It’s not a “what if” issue, but a question of “when” a home loses its luster and the real estate price of the home falls.

In fact, there is evidence that the downtrend has already begun.

“In the United States, mortgage applications have fallen 28% from peak times, new home sales have fallen 17%, and housing starts have fallen 13%,” said Neil Shearing, Chief Economist at Capital Economics. I am saying. “Similar stories are happening in the UK, Canada, Australia, New Zealand and Sweden.”

The downturn is inevitable, and the main question now is what happens to the low prices in the real estate market.

“The central banker will give up, the central banker will take away,” Shearing said. “It was their low interest rate policy that helped house prices rise abnormally and globally. As the rise in inflation across generations rapidly ended that low interest rate era, the housing market Earlier warnings that proved to be the most vulnerable to policy tightening are becoming reality. “

Home price volatility is already underway, but the current decline may not look like 2008, when the entire mortgage sector was in serious danger.

“The factors underlying the recent rise in prices are very different from the factors behind the surge in the mid-2000s,” Shearing said. “At that time, the home price bubble was inflated by the rapid expansion of mortgage debt driven by loose regulations and loose lending standards. When the bubble burst, homeowners fell into negative equity and forced sales. Created a self-reinforcing downward spiral. “

Leverage is also low in today’s housing market, according to Shearing.

“Household debt in income increased sharply between 2000 and 2007, but declined during the post-crisis leverage period and has been stable for the past few years,” he said. “On the other hand, the regulations that came into force after the last crisis mean that the condition of banks has improved significantly.”

There is no talk of housing bubbles

Most real estate analysts agree that history will not be repeated and that the 2022 housing market slides are not like the 2008 housing market.

Shmuel Shayowitz, Chief Financing Officer for Approved Funding in River Edge, NJ, said: stock. “

Since the collapse of housing due to the Great Depression in 2008, housing supply has not kept up with buyers’ demand, and the COVID pandemic has only intensified the already low housing inventory deficit.

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“I don’t think the housing market will collapse because we haven’t experienced the same situation we saw in 2005-2007,” says Shayowitz. “The housing market is strong and lending standards have been cautious over the last decade or more.”

In addition, many homes have considerable fairness, Shayowitz said.

“In addition, a review of statistics since 1954 shows that home prices have fallen after the recession, following the Great Recession of 2008,” he added. “This is more help to remind people that not all recessions lead to the collapse of homes.”

Geography plays a role

Demand for housing is expected to remain high in some US regions, so only moderate price volatility is expected to be seen there.

Craig Studnicky, CEO of ISG World, a real estate development services company in Miami, Florida, said: Mass migration from the northern states to the Sun Belt and the population of the Sun Belt are skyrocketing. “

Real estate prices in these regions continue to rise and prices in northern states will level off. “Many of those people are drawn to states like Florida where there is no income tax,” said Studnicky. “Remote work has furthered this.”

The 2022 real estate market doesn’t remind anyone of the Great Recession, but real estate buyers and owners should always be careful.

“We are facing a recession. This means a few things. Unemployment can rise, market buyers go down, and prices can settle in different parts of the United States. There is, “says Studnicky. He said. “The rise in mortgage rates has already reduced the number of buyers in the market.”

With fewer buyers, at least the property stays in the market longer and can lead to lower home prices.

“Last year, the average number of days in the market was less than 30 days,” says Studnicky. “This year, the market is about 90 days old. If you get into a recession, it could be 120 days to 6 months. The recession slows everything down.”

Studnicky also expects mortgage rates to stabilize by the end of the year.

“Currently, the cost of a fixed rate loan is about 6.2%,” he said. “In fact, mortgage rates can even settle between 5% and 6% by the end of the year.”

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