Is the Real Estate Market Heading Toward Another Crash?

  Many people have been asking me if we’re headed toward another real estate market crash. Here are my thoughts.  
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Is the real estate market going to crash? I’ve been getting that question more frequently, so today I wanted to give you my answer.

There are plenty of differences between what we saw in the crash about 10 years ago and what we’re seeing in the market right now. We peaked in the summer of 2007 before dropping 45% and bottoming out in 2012. Since that time, we’ve seen an upward trajectory in the market.

We’re due for a correction soon, but a crash is unlikely. A recession is certainly plausible. However, a recession simply means we’ll see a slowing in the pace of growth, which is healthy and needed. Here are a few different statistics that show we are in a different place then we were back then.

In 2005, everybody with a pulse could get a subprime mortgage loan. In fact, $620 billion was loaned in subprime mortgages back then. That made up 20% of all mortgages. These days, we are only seeing about $56 billion spent in subprime loans, which is only 5% of the market. This means that the banking industry has learned their lesson and isn’t being irresponsible with loans like they were in the past.

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Homeowners are much more responsible with their equity these days.

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Banks have certainly increased their lending standards since the market crash. In 2016, the loans given out by lenders were the highest quality of loans that we’ve seen in the previous 15 years. Back in 2001, the average FICO score for a homebuyer was 490, which is awful. In 2009, that figure jumped to 686—a much more reasonable score.

Finally, American homebuyers are much more responsible when it comes to using their equity. In 2006, homeowners were pulling out $85 billion worth of equity. A lot of it was being misused in the form of buying second homes, cars, and other unnecessary expenditures. These days, our community has been much more responsible. Although values have come back to where they were before the crash, only $14 billion was pulled out for equity in the last year.

In the Puget Sound area, our average sale price is now above where it was at the peak in 2007. People understand the market better and are more responsible with their assets.

If you have any questions about the market, your home, or your future buying or selling plans, don’t hesitate to reach out and give us a call or send us an email. We look forward to hearing from you soon.