Agent: If the market did crash tomorrow and the home you own that’s worth $1,000,000 is now worth $850,000. What are you going to do?
Homeowner: Nothing, I guess.
Agent: Exactly! That’s the biggest difference between now and 2008.
Homeowner: Tell me more...
Agent: In 2008, a lot of people had Adjustable Rate Mortgages, which meant the bank could come in and say - “Hey, your monthly mortgage is higher”.
Homeowner: That doesn't seem fair.
Agent: Right?! Plus, mortgage companies were giving people loans who could hardly afford the payment as it was.
So when banks increased interest rates, people who couldn’t afford their mortgage payments were forced to sell their homes.
AND - if you weren’t being forced to sell for a lower price, why would you?
Homeowner: So if I own a house and the market crashes, nothing really changes for me.
We could only have a crash if we had a huge spike in supply (homes available to buy) and a giant drop-off in demand of people who want to buy a home right now.
The reality of today's market
- Lending requirements are much more strict than in the years leading up to the 2008 crash and require extensive background checks to qualify.
- Many homeowners are putting 20% or more down to avoid PMI (private mortgage insurance).
- That means, many homeowners have 20% or more in equity to start + equity from the home value appreciation + equity from the loan pay down.
- Many existing homeowners refinanced and secured to the lowest rates in history (2020-2021)
- New homeowners (2020-2021) purchased and secured the lowest rates in history
- Most people do not have Adjustable Rate Mortgages anymore. The 30-year fixed rate mortgage is the most popular, making homeowners' mortgage monthly payments stable.
- When you own property for 5-7+ years, you're more than likely going to ride out any market fluctuation.