Housing bubble crash: A Valentine’s Day reality check

Nonetheless, during those years, existing home sales, new home sales, home prices, housing starts, permits, and completions were booming. The demand was present, but it was driven by credit rather than wages, causing the entire housing market to be out of sync with the realities of the economy. 

FICO scores

In the U.S., the homeownership journey is marked by the unique advantage of fixed debt costs and the rising tide of wages. Enter the 30-year fixed mortgage — a financial gem that many countries envy! It’s a reliable tool that promotes stability and offers peace of mind for homeowners nationwide.

Looking back at the housing bubble years, we saw an explosion of adjustable-rate mortgage (ARMs) products. These loans? They sometimes felt more like economic time bombs than the dependable, straightforward 30-year fixed mortgage we know today. Back then, underwriting standards were a far cry from what they are now, leading to risks that we wouldn’t tolerate in today’s market.

As someone who champions the idea of ‘boring’ in finance, I appreciate how a straightforward product can do the job efficiently. The appeal of the 30-year fixed mortgage lies in its stability, allowing homeowners to flourish without the chaotic ups and downs that come with more exotic loans. 

Today, we’re witnessing the results: homeowners enjoying unprecedented cash flow bolstered by this reliable product. There are no complex recasts or wild surges from fancy loan products — just a solid, reliable way to have a fixed-debt cost while your wages rise each year. In a world that often favors the flashy, there’s something compelling about sticking with what works and maximizing long-term benefits. Embracing the simple and the steady truly has had great results, as you can see below in how great the FICO scores of homeowners have been for 14 years.

Home equity this time around: A lot larger

The story of the housing market crash is a cautionary tale that still resonates today. Remember the turmoil of those years?As countless families teetered on the edge of financial despair, many found themselves under water on their homes and facing the looming threat of foreclosure. The harsh reality of their situation was very stressful. At one point in 2010, a staggering 23% + of homes in the U.S. were underwater, leaving homeowners feeling in a terrible spot.

Historically, any drop in national home prices is a rare occurrence. If we look at the bigger picture, excluding the tumultuous years from 2007 to 2011, the only dip we saw was in 1990 —just a 1% decline! Yet, during the crash, home prices plummeted nearly 30% nationally, and the aftermath was devastating, marked by a wave of foreclosures and short sales as people struggled to free themselves from the burden of housing debt. 

Fast forward to today, and there’s fresh air: only 1.8% of homes are underwater, a mere 0.01% away from an all-time low. This significant data line is a testament to the housing market and that when you lend to the capacity to own the debt, we should never get ourselves in a housing market where over 23% of the homes are under water.

Did you know that 40% of homes in America are owned outright, free from any mortgage? That’s a wonderful data line as Americans have roughly $38 trillion in equity. Back in 2008, the total loan-to-value ratio was hovering around 85%. This meant that homeowners who took on debt — whether for a new purchase or a cash-out refinance — were walking a tightrope, especially if home prices dropped due to distressed sales.

Fast forward to today, and we find the loan-to-value ratio has plummeted to 46.6%. So, sorry Uncle Dave, but it looks like the housing crash of 2008 is unlikely to happen again, especially with the qualified mortgage law keeping things in check. It’s a different landscape now.

Whether you’re celebrating Valentine’s Day with a loved one or just enjoying a cozy Friday, I hope you have a wonderful day! Just a little reflection: the housing bubble boys that have been around since 2012 have fabricated a story to promote their doom porn agenda. It’s okay to move forward and embrace progress. Wishing you all a fabulous weekend.