{"id":4736,"date":"2022-10-01T16:16:00","date_gmt":"2022-10-01T20:16:00","guid":{"rendered":"https:\/\/propertyonion.com\/education\/?p=4736"},"modified":"2022-10-06T23:01:02","modified_gmt":"2022-10-07T03:01:02","slug":"will-a-recession-affect-the-housing-market-as-it-did-in-2008","status":"publish","type":"post","link":"https:\/\/propertyonion.com\/education\/will-a-recession-affect-the-housing-market-as-it-did-in-2008\/","title":{"rendered":"Will a Recession Affect the Housing Market as It Did in 2008?"},"content":{"rendered":"\n<p>Since the <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.bea.gov\/data\/gdp\/gross-domestic-product#:~:text=Real%20gross%20domestic%20product%20(GDP,decrease%20in%20federal%20government%20spending.\" target=\"_blank\">July 28 announcement<\/a> that US GDP fell two quarters in a row, many believe we are now in recession (or at least close to one).\u00a0<\/p>\n\n\n\n<p>As a real estate investor or homeowner, this may sound like bad news. It may even bring flashbacks to the last major US <a href=\"https:\/\/propertyonion.com\/education\/which-real-estate-niches-performed-well-during-the-last-recession\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"recession (opens in a new tab)\">recession<\/a> in 2008 when the housing market plummeted, and many homeowners lost fortunes.&nbsp;<\/p>\n\n\n\n<p>If this sounds like you (or you\u2019re afraid it could become you), read on.<\/p>\n\n\n\n<p>In this article, we\u2019ll go over why the housing market crashed in 2008, what\u2019s different about this recession, and what\u2019s next for the US housing market.&nbsp;<\/p>\n\n\n\n<p>Let\u2019s get started!<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 ez-toc-wrap-left counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">In this Article:<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/propertyonion.com\/education\/will-a-recession-affect-the-housing-market-as-it-did-in-2008\/#What_Caused_the_2008_Housing_Crash\" >What Caused the 2008 Housing Crash?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/propertyonion.com\/education\/will-a-recession-affect-the-housing-market-as-it-did-in-2008\/#Whats_Different_about_this_Recession\" >What\u2019s Different about this Recession?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/propertyonion.com\/education\/will-a-recession-affect-the-housing-market-as-it-did-in-2008\/#Whats_Next_for_the_US_Housing_Market\" >What\u2019s Next for the US Housing Market?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Caused_the_2008_Housing_Crash\"><\/span><strong>What Caused the 2008 Housing Crash?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The causes of the 2008 housing crash are complex, but here\u2019s a quick breakdown:<\/p>\n\n\n\n<p>Starting in 1999, government-backed mortgage companies Fannie Mae and Freddie Mac wanted to help more people achieve the American Dream by becoming homeowners. They loosened their lending requirements and issued subprime mortgages to borrowers with low credit scores and a high risk of defaulting.<\/p>\n\n\n\n<p>Naturally, this led to increased demand for real estate, with some people even buying second and third houses to take advantage of the loose lending requirements.\u00a0<\/p>\n\n\n\n<p>The increased demand also raised home values, leading to an average home price of <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.investopedia.com\/investing\/great-recessions-impact-housing-market\/#:~:text=From%20the%20mid%2D1990s%20to,according%20to%20U.S.%20census%20data.\" target=\"_blank\">nearly $314,000<\/a> at the height of the real estate boom in 2007. And because home prices continued to rise, many homebuyers thought they could resell their house at a profit later if they needed to; it seemed like a \u201crisk-free\u201d investment!<\/p>\n\n\n\n<p>Like anything that seems too good to be true, it was! The housing boom was really a bubble because it relied on underqualified borrowers. Many subprime mortgages had <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.investopedia.com\/terms\/a\/arm.asp\" target=\"_blank\">adjustable interest rates<\/a>, which often started low and then shot up after two or three years, making it even harder for borrowers to make their payments.<\/p>\n\n\n\n<p>If the situation weren\u2019t bad enough, mortgage lenders started selling pools of subprime mortgages (aka mortgage-backed securities) to investors in the <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.investopedia.com\/terms\/s\/secondary_mortgage_market.asp\" target=\"_blank\">secondary mortgage market<\/a>, which exposed even more of the economy to the risky subprime mortgage market.<\/p>\n\n\n\n<p>By the fall of 2008, many defaulted on their home loans, and home values started plummeting. Suddenly, borrowers found themselves <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.investopedia.com\/terms\/u\/underwater-mortgage.asp\" target=\"_blank\">underwater<\/a> on their mortgages (i.e., their mortgage was higher than the value of their home), which meant they could no longer flip their way out of their house. They had to resort to foreclosure and bankruptcy, and the writing was on the wall.\u00a0<\/p>\n\n\n\n<p>Soon, the influx of <a href=\"https:\/\/propertyonion.com\/education\/does-the-recent-rise-in-foreclosures-signal-a-housing-market-crash-ahead\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"foreclosures (opens in a new tab)\">foreclosures<\/a> and defaults led to an over-supply of housing coupled with a drop in demand. Foreclosed properties flooded the market, and home buying came to a halt because many were afraid of their investment going south. Ultimately, US homes lost <a href=\"https:\/\/money.cnn.com\/2008\/12\/15\/real_estate\/underwater_borrowers_near_12million\/index.htm\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">$2 trillion in value<\/a>. Many homeowners were devastated, but that wasn\u2019t the end of the story!&nbsp;<\/p>\n\n\n\n<p>The housing crash also wiped out the financial securities backing the subprime mortgages, causing the US stock market to fall and, eventually, the entire global economy to collapse. In short, the housing crash affected nearly everyone.<\/p>\n\n\n\n<p>What did the US government do in response? First, they attempted to stimulate the economy by setting the federal funds rate (which controls interest rates) to near-zero, which made it cheaper to borrow money. The government also passed policies like the 2010 <a href=\"https:\/\/www.investopedia.com\/investing\/great-recessions-impact-housing-market\/#:~:text=From%20the%20mid%2D1990s%20to,according%20to%20U.S.%20census%20data.\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">Dodd-Frank Wall Street Reform and Consumer Protection Act<\/a>. This significantly helped tighten up bank lending policies in an attempt to prevent a housing crash repeat. The real question is: has it worked?<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Whats_Different_about_this_Recession\"><\/span><strong>What\u2019s Different about this Recession?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Assuming we\u2019re entering another recession, should you be worried that the housing market will crash again? The short answer is no. Here\u2019s why:<\/p>\n\n\n\n<p>The housing market looks much different than it did in 2008. For one, the rising home prices over the last few years aren\u2019t due to an increase in subprime mortgages. Today, we have stricter lending regulations in place.\u00a0<\/p>\n\n\n\n<p>You can\u2019t qualify for any kind of mortgage unless you have a credit score of at least 620. In addition, you must make a down payment of at least 3.5% and fully document your income, debts, assets, and debt-to-income (DTI) ratio\u2014everything.<\/p>\n\n\n\n<p>You are also only allowed to choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) that meets \u201cqualified mortgage\u201d standards set by the <a href=\"https:\/\/www.consumerfinance.gov\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">Consumer Financial Protection Bureau<\/a> (which was established under the Dodd-Frank Act).&nbsp;<\/p>\n\n\n\n<p>This, in effect, means there are fewer (if any) risky loans underlying the current housing boom. In fact, the percentage of mortgages today that are ARMs is only 8%, compared to 36% in 2007. On top of that, fewer people are falling behind on their mortgages than in 2007: Less than 3% of mortgages are past due.\u00a0<\/p>\n\n\n\n<p>In 2007, rising home prices were due to subprime borrowers buying up houses in a rush. Today\u2019s rising home prices are due to a <a href=\"https:\/\/www.npr.org\/2022\/07\/14\/1109345201\/theres-a-massive-housing-shortage-across-the-u-s-heres-how-bad-it-is-where-you-l\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">housing shortage<\/a> (driven by COVID-19-related supply chain issues) and high demand (driven by <a href=\"https:\/\/themortgagereports.com\/61853\/30-year-mortgage-rates-chart\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">record-low mortgage rates<\/a>).&nbsp;<\/p>\n\n\n\n<p>The real estate market is hot like it was in 2007 \u2014 just for different reasons.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Whats_Next_for_the_US_Housing_Market\"><\/span><strong>What\u2019s Next for the US Housing Market?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Right now, we are barely starting to see <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.bloomberg.com\/news\/articles\/2022-08-09\/home-listings-soar-in-cooling-us-housing-market#xj4y7vzkg\" target=\"_blank\">signs that the housing market might be cooling down<\/a>; this is what has many homeowners worried. Are these the first signs of a housing crash?\u00a0<\/p>\n\n\n\n<p>Given the stability of the mortgage industry today and how much stricter lending policies are, it\u2019s more likely that home prices will even out. Mortgages that people procured in 2021 had attractive <a href=\"https:\/\/propertyonion.com\/education\/will-rising-interest-rates-bring-more-foreclosures-in-2023\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"rates (opens in a new tab)\">rates<\/a>, but they were only given to qualified borrowers.<\/p>\n\n\n\n<p>If we experience another recession, it won\u2019t be a result of an over-leveraged mortgage industry; most likely, home prices will continue to rise, though perhaps at a slower rate.&nbsp;<\/p>\n\n\n\n<p>Ultimately, there\u2019s no way to predict the future, but you can be sure that the state of the US housing market is always determined by supply and demand. If there\u2019s high demand for housing but low supply (as there has been lately), prices will go up.&nbsp;<\/p>\n\n\n\n<p>Now that housing inventory is picking up a little and demand seems to be cooling down, home prices will probably stabilize, but they will keep going up over time.<\/p>\n\n\n\n<p>That means now is as good a time as ever to be a real estate investor. If you\u2019re looking for investment property in the Florida market, be sure to check out PropertyOnion.com\u2019s <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/propertyonion.com\/property_search\" target=\"_blank\">free property search tool<\/a>. It\u2019ll help you find some of the best tax-deed and foreclosure deals out there! So don\u2019t wait. Get out there, and find your next real estate deal today! <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Since the July 28 announcement that US GDP fell two quarters in a row, many believe we are now in recession (or at least close to one).\u00a0 As a real estate investor or homeowner, this&hellip;<\/p>\n","protected":false},"author":41,"featured_media":4743,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[376,364,377,437,67,430],"class_list":["post-4736","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-articles","tag-housing-market","tag-inflation","tag-investor","tag-market-crash","tag-real-estate","tag-recession"],"_links":{"self":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/4736","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/users\/41"}],"replies":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/comments?post=4736"}],"version-history":[{"count":3,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/4736\/revisions"}],"predecessor-version":[{"id":4745,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/posts\/4736\/revisions\/4745"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/media\/4743"}],"wp:attachment":[{"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/media?parent=4736"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/categories?post=4736"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/propertyonion.com\/education\/wp-json\/wp\/v2\/tags?post=4736"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}