Last March, many involved in the residential housing sector feared that the market would be crushed by the pressure of a once-in-a-lifetime pandemic. Instead, the he real estate market had one of the best years in its history. Sales and house prices have increased substantially compared to the previous year. 2020 was so strong that many now fear that the exuberance of the market is a reflection of the last real estate boom and, as a result, we are now heading for another crash.

However, there are many reasons why this real estate market is nothing like it was in 2008. Here are six images to show the relevant differences between the housing crisis of 2008 and today.

1. Financing standards are unparalleled.

During the real estate bubble, it was difficult no get a mortgage. Today it's difficult to qualify. Recently, the Urban Institute has released its latest Housing Credit Availability Index (HCAI), which

"measures the percentage of loans for the purchase of owner-occupied homes that are likely to default, i.e. have not been paid for more than 90 days after the due date A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing stricter credit standards, making it more difficult to obtain a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking on more risk, making it easier to get a loan."

The indices show that lenders were comfortable with the high level of risk they were taking during the 2004-2006 real estate boom. It was also revealed that ,the HCAI, is down 5%, its lowest since the introduction of the index. The report explains:

"There remains significant room to safely expand the volume of credit. If the current default risk were doubled across all channels, the risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the entire mortgage market."

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2. Prices are not rising out of control.

Below is a graph showing the annual growth in house prices over the last four years, compared to the four years before the peak of the housing bubble. Although price appreciation has been quite strong last yearThis is nowhere near the rise in prices that preceded the crash.

There is a big difference between these two time periods. The normal appreciation is 3.8%. So although the current appreciation is higher than the historical normal, it is certainly not accelerating out of control as it did in the early 2000s.

3. We don't have any houses left on the market. We have a huge shortage.

The stock of months needed to sustain a normal real estate market is approximately six months. Anything beyond that is a overabundance and cause prices to depreciate. Anything less than that is a fault and will lead to continuous appreciation. As the next graph shows, there were many houses for sale in 2007 and this caused prices to plummet. Today, there is a shortage of stockThis is causing house values to accelerate.

4. The speed of new construction is not compensating for the difference in stock required.

Some might think that new construction is filling the void. However, if we compare today with the period before the real estate collapse, we can see that an overabundance of newly built homes was a big challenge then, but it isn't now.

5. Houses are not becoming too expensive to buy.

The accessibility formula has three components: the price of the house, the salaries earned by the buyer and the mortgage rate available at the time. Fifteen years ago, prices were high, wages were low and mortgage rates were above 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is around 3%. This means that the average homeowner pays less of their monthly income towards their mortgage payment than they did back then. Here's a graph showing that difference:

Like Mark Fleming, chief economist for the FirstAmerican, he explains:

"Lower mortgage interest rates and rising incomes correspond to higher house prices, as buyers can afford to borrow and buy more. If houses are valued properly, the purchasing power of the house should be equal to or higher than the average selling price of a house. Looking back to the years of the housing bubble, house prices exceeded the purchasing power of a house in 2006, but today the purchasing power of a house is almost twice as high as the national average selling price."

6. People are rich in net worth, not depleted.

In the run-up to the real estate bubble, homeowners were using their homes as personal ATMs. Many immediately removed their equity as soon as it accumulated and have learned their lesson in the process quite painfully. Prices have risen sharply in recent years, leading to more than 50% of homes in the country having more than 50% of equity - and homeowners haven't been taking advantage of this like they did last time. Here's a table comparing equity withdrawals over the last three years compared to 2005, 2006 and 2007. Owners have withdrawn almost $ 500 billion dollars less than before:

During the crisis, the value of the houses began to fall and the sellers found themselves in a situation of negative equity (where the value of the mortgage they owed was greater than the value of the house). Some decided to abandon their homes, which led to a wave of advertisements for distressed properties (foreclosures and short sales), which were sold at huge discounts, thus reducing the value of other homes in the area. With the average house now worth over $ 190,000, that won't happen today.


[mpc_alert preset="mpc_preset_21" disable_icon="true" icon="ti ti-face-smile" icon_color="#f8bf4d" icon_size="28" icon_background_color="#f3f3f3" icon_border_css="border-color:#f8bf4d;border-style:solid;border-radius:0px;" font_preset="mpc_preset_13" font_color="#5555" font_size="18" font_transform="uppercase" font_align="left" content_border_divider="true" content_border_css="border-top:0px;border-right:0px;border-bottom:0px;border-left:0px;border-color:#88d282;border-style:solid;border-radius:0px;" content_padding_divider="true" content_padding_css="padding-top:25px;padding-right:25px;padding-bottom:25px;padding-left:25px;" background_color="#f7f7f7" border_divider="true" border_css="border-top:5px;border-right:0px;border-bottom:0px;border-left:0px;border-color:#f8bf4d;border-style:double;border-radius:0px;" padding_divider="true" margin_divider="true" margin_css="margin-bottom:30px;" mpc_ribbon__disable="true" mpc_ribbon__text="Conclusion"]If you're worried about the U.S. housing market because you think we're making the same mistakes that led to the real estate collapse, take a look at the charts and graphs above to help ease your fears.[/mpc_alert]

Any doubts?

Now that you know a little more about the differences between now and the 2008 real estate crisis, we're here to help you understand the behavior of the real estate market and consider investing in vacation homes in Orlando. To make the most of all the tips we've given you and go even deeper, you can talk directly to our relationship agents. They are always happy to talk to you to answer any questions you may have about investing in Florida.

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