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Is the Housing Bubble About to Pop?

Thursday, April 28, 2022   /   by Flr Team

Is the Housing Bubble About to Pop?

Homeownership is still the American dream, and the strong desire for homeownership has kept home values appreciating. But with the continual rise of home prices, some people may be concerned that the housing bubble is about to pop, just as it did in 2006.

The way prices have spiked over the past two years is very similar to how prices spiked prior to 2006. But today’s market is nothing like the one we experienced 15 years ago. Let’s look at what happened last time and what is happening today.

There were many foreclosures back in 2006 that dramatically drove down home values. The reason for this is that banks were creating demand for homebuyers by lowering lending standards and making it easy for anyone to qualify for a home loan or refinance their current one. Purchasers were not truly qualified for the mortgage they obtained, which led to homes turning into foreclosures. 

Today, mortgage companies have much higher standards for those purchasing or refinancing homes, knowing that they can afford the mortgage they’re taking on. This leaves for little concern about possible defaults happening. 

Another reason why our current market differs from the past is because people are not using their homes as ATMs like they did in the early 2000s. Many people thought the escalation of prices would never end, so they started to borrow against the equity in their homes to finance cars, boats and vacations. When prices dropped, their homes were worth less than their mortgages. Many of these homeowners had to walk away from their homes, leading to more foreclosures. This also lowered neighboring home values.

Homeowners today didn’t forget the lessons of the crash as prices have increased over the past few years. Black Knight reports that the amount of equity available for homeowners to access before hitting their maximum loan-to-value ratio has more than doubled compared to 2006. First American ATTOM Data Services also reveals that 41.9% of all mortgaged homes have at least 50% equity. These homeowners will not find themselves struggling to pay their mortgage even if prices are to slightly take a dip. 

The major reason for the housing crash 15 years ago was the wave of foreclosures. With much stricter standards and a huge level of homeowner equity, it’s not likely that a flood of foreclosures will impact today’s market.

Contact our team of professionals to learn more about what to expect in the current housing market and how it may affect you.

Florida Lifestyle Realty