Recently, some of my clients have asked point-blank, “Ivy, will this Coronavirus crater the housing market?” My pointed reply? “No.”
Why? In 2008, we suffered a banking crash. In 2020, we are suffering a healthcare crisis. I liken it to comparing apples and pears.
In order to offer greater clarity and contrast, allow me to highlight four differences between 2008 and 2020. The following graphics originated with Keeping Current Matters and reflect national statistics.
Difference 1: Easy Money Versus Show Me the Money
In 2006, a twenty-something dad of three received a phone call one night. “Is this Mr. O____? I represent _______ Mortgage Company. I see you have an impeccable credit history. My company would like to offer you a mortgage for $325,000. All you have to do is…”
But Mr. O did not possess sterling credit. He held a part-time job. His wife cashiered at Target. They carried an insufferable medical debt load of over $100,000.
While this example is an outlier, it is only so by a few degrees. In contrast to the “Easy Money” of 2006, in 2020 lenders ask, “Show Me the Money.”
The following graph reveals the contrast. In summary, a Mortgage Credit Availability Index shows the ease in obtaining a mortgage – higher numbers equate to easy-breezy money while lower numbers mean fewer-tougher loans. Today, the index shows the challenge of obtaining a mortgage compared to 2006.
Difference 2: Stratosphere Versus 35,000 Feet
“Ivy, I can’t believe how high home prices are compared to a year ago. I’ve never seen anything like it.”
My reply? “Then you must not have been around during the nose-bleed, stratospheric price increases from the early 2000s.”
There were no flip or flops from 2000 – 2005, only flip and flip again.
Difference 3: 1-2-3 Versus 1-2-3
The ability to afford a home is all about three numbers.
1 – Money you make.
2 – Price of the home.
3 – Mortgage rate for your loan: the higher the rate, the more you pay.
2007 – Wages were lower, prices in comparison to wages were higher and interest rates were about 6%. 2020 – Wages are higher, prices in comparison to wages are lower and interest rates are about 3.5%
Difference 4: ATM Versus IRA
Prior to the housing implosion of 2008, many homeowners treated their house as an ATM. Descending interest rates provided refinancing opportunities. Ascending home prices provided cash withdrawals. When home prices started tumbling, homeowners found themselves upside down – owing far more than the newly devalued worth of their property. Many walked away. Foreclosures flooded the market
But in 2020, owners view their home more like an IRA – allowing appreciation to grow until a later point in time. As a result, homeowners are able to withstand dips in the market.
A few days ago, a team member told me this story. One of her buyers was convinced that 2020 would unfold exactly like 2008. A desirable house, at his price point, came on the market. He offered 30K less, convinced the sellers would accept his “reasonable offer.” They did not. Two days later, as he drove by, he saw the sign rider: “Sale Pending.”
Let me end here: I launched my real estate career in 2008. I walked in when most REALTORS walked out. I hugged distressed sellers. I encouraged trepid “maybe” buyers. I walked the rubble. 2020 is not like 2008. If you want to talk, call me. If you need more information, email me. I am here for you.
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