Market Update January 2021 – #2

This is the second in this month’s video series all about what to expect in the real estate market in 2021. Are we going to see a crash?

So that’s the real question. Are we going to have a real estate crash? With bidding wars and lack of inventory, many people are asking us if we feel the market’s going to crash. You know the saying, “What goes up must go down.” We understand how scary it may be thinking about what to do. We’re in the market just like you. This is a very unpredictable time. But let’s truly compare what happened back in 2006 when we had one of the biggest crashes in American history.

According to the National Association of Realtors Chief Economist Lawrence Yun, he says, “Such a frenzy of activity, reminiscent of 2006, raises questions about a bubble and the potential for a painful crash. The answer: There is no comparison. Back in 2006, dubious adjustable-rate mortgages taxed many buyers’ budgets. Some loans didn’t even require income documentation. Today, buyers are taking out 30-year fixed-rate mortgages. 14 years ago, there were 3.8 million homes listed for sale and home builders were putting up about 2 million new units. Now, inventory is only about 1.5 million homes, and home builders are underproducing relative to historical averages.”

So the thing to notice from that quote was when he said, “There is no comparison”. Also, a major contributor to the crash back in 2006 was the fact that loans were being given to buyers based on stated income. Buyers were being qualified for a loan that they simply could not afford. In many cases, little paperwork was needed to qualify for a loan. Someone would simply state what they made and that was considered enough.

That is not the case now. Lenders pretty much want your firstborn child to approve you. They go above and beyond in qualifying you for a loan and making sure you have the means to pay it.  That should give us some relief with respect to the housing market and its sustainability. Also, homes appraising at exceedingly higher values from one week or one month to the next had a significant impact on the crash. That is just not happening anymore. There are stringent guidelines for appraisals and the amount a bank will lend for a home.

We feel we should all take solace knowing that there are many more factors that lead to the crash of 2006 that we just do not see today. A&J Realty Partners with Key Realty are always here to help. Reach out to us even if you just have a few questions. Remember, we’re here to help you fulfill your dreams no matter the size.