Will the housing market crash like 2008? (Podcast)

October 17, 2022 - 3 min read

Are we in a housing bubble in 2022?

Is the housing market melting down? Is there going to be a crash? Will it be 2008 all over again?

Trying to buy a home in 2022 comes with a laundry list of questions and concerns. The biggest one is whether or not the rapid growth of home prices created a bubble that could burst at any second.

Fortunately, while prices should moderate or drop slightly, no one’s predicting a repeat of 2008. Mortgage expert Ivan Simental explained how the mortgage industry learned from past mistakes on a recent episode of The Mortgage Reports Podcast. Here’s what he had to say.

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Why 2022 isn’t the second coming of 2008

As interest rates grow to help offset inflation, the once-red-hot housing market is finally cooling off. Historically high home prices have pushed some would-be buyers to the sideline, making things easier for those who remain. But there is also concern that home values could fall off a cliff.

“All of this has people asking if the housing market is in the same predicament that happened over a decade ago when the 2007-2008 crash caused the Great Recession. The short answer is, ‘absolutely not,’” Simental emphatically states.

“People [are] asking if the housing market is in the same predicament that happened over a decade ago... The short answer is, ‘absolutely not.’“

Today’s housing market is in far better shape thanks, in part, to lending regulations made after the meltdown to avoid another one in the future. “Lending has become much, much stricter and those rules have put today’s borrowers on a far firmer footing,” Simental explains.

One way the increased strictness can be seen is the higher credit standards lenders hold themselves to. The average borrower’s FICO score is 751 today compared to 699 in 2010 (two years after the financial crash).

In addition, historically risky loan types such as adjustable-rate mortgages (ARMs) now come with important borrower protections like interest rate caps. These help prevent the sky-high payment increases that pushed many borrowers to foreclosure during the mortgage crisis.

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Behind the “solid footing” of today’s housing market

While soaring home prices have created a financial hurdle for house hunters, they’ve also helped insulate the market from a crash.

Increased property values gave borrowers a record amount of home equity to tap into. Equity is the amount of cash a borrower can take out of their home value, up to 80%. It can provide a financial cushion during tough times, helping borrowers avoid default or foreclosure. Altogether, homeowners have $11 trillion worth of home equity in 2022, a 34% increase year-over-year, according to Black Knight.

Total mortgage debt also fell to its lowest level on record, with the average borrower owing just 43% against their home’s value, Simental explains.

Additionally, negative equity or being “underwater” (when a borrower owes more on a mortgage than the property’s worth) is virtually non-existent. In 2011, over 25% of borrowers were underwater. As of the end of the second quarter this year, just 1.8% of homeowners fell into that category, according to CoreLogic.

This combination of factors provides a considerable buffer against another housing market crash. So those looking to buy a home shouldn’t worry about it becoming a bad investment due to an impending collapse (or even an economic recession).

As Andy Walden, Black Knight’s VP of enterprise research strategy, recently said: “The mortgage market is on solid footing.”

Advice for home buyers in 2022

The housing market shouldn’t be facing any impending doom. Though affordability does remain a major and real concern, with the past two years’ steep price growth and interest rates reaching 20-year highs.

If this tandem priced you out of the home buying market, conditions should get more palatable once inventory makes bigger strides, Simental states.

“Right now is the best time to purchase a home — if you can afford a home, of course, and if you’re in a good place to. No, there isn’t going to be a meltdown. We are still in a very healthy market as we speak,” he said.

If you’re ready to buy a home, talk to a local lender or real estate professional to begin your path to homeownership.

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Paul Centopani
Authored By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.