How Has The Housing Market Changed Since 2008?
The U.S. economy lost trillions of dollars during the 2008 Financial Crisis. This huge financial cost impacted millions of people who lost their homes in a slew of foreclosures – sending the housing market into a downward spiral.
The government had to step in with a stimulus package worth over $700 billion and signed into law the American Recovery and Reinvestment Act of 2009 to jumpstart the economy.
Fast forward to today, how has the housing market fared since the burst of the real estate bubble, and what are the lessons learned from the experience?
A successful jumpstart
Throughout the U.S. the housing market has generally recovered, with prices returning to their pre-crisis levels. However, there are still some markets that have yet to make a full recovery, such as Arizona, Florida, and Illinois.
Even as prices started to go back to normal a few years after the crisis, there clearly was no rush to buy homes. Instead, we’ve seen a steady come back of homeownership rates to peak levels in 2004 (about 69.2 percent). As of the first quarter of 2020 rates are just a bit over 65 percent, according to the Census Bureau.
Revamp of lending policies
Back in the days of the crisis, when we buy houses in Tucson or elsewhere, it was very easy to get a loan.
Lenders were very loose when it came to underwriting requirements. As long as you wanted to get a home, you could sign up easily. In 2006 for example, about a third of mortgages had little to no documentation.
Now, however, everybody is now more focused on making loans and credit more sustainable. New rules are in place to ensure strict compliance of documentation requirements and required income levels. The larger change is that there is now a broad awareness of the standards that should be satisfied for any loan to be issued.
Through the combination of new rules and prompt compliance of standards that were already in place even before the crisis, the system has become stronger and financially stable.
While not entirely different from before, the reasons people sell their homes or buy new ones today now heavily emphasize practicality – do we have the money or not?
In the years leading up to the bubble bursting, the housing boom encouraged everybody to buy multiple homes. Taking on new mortgages on top of previous ones was simply not an issue or a concern.
But today, consumers are now more vigilant and generally cautious about acquiring home assets. If the money is there or payment terms are manageable, fine. Otherwise, it would be a purchase that needed to be postponed.
We might see an even more robust housing market soon as more millennials and younger generations enter the workforce and boost demand. But a limited supply of homes will likely temper these expectations. Americans will still want to buy homes and in time the housing market will get to an ideal level where demand is sufficiently met.
We’ve come a long way since 2008 and we can take comfort in the thought that vast improvements have truly been made across the industry.