Wednesday, March 22, 2023

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Why is the “2008 housing crisis coming back” argument short?

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Recently, there have been many rumors about the housing crisis of 2008, again in 2023.

I hear the phrase underwater mortgages and foreclosures again after more than a decade.

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Of course, the housing market has cooled significantly since the beginning of 2022. There’s no denying it.

You can largely thank a 6% 30-year fixed-rate mortgage. Increase the 3% rate to roughly double what you could snag in previous years.

But this does not mean that we are about to repeat history.

Goldman Sachs Forecasts 2008 Style Home Prices Falling in Four Cities

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The latest nugget touting the massive real estate market crash comes from Goldman Sachs.

investment bank warn Four cities will see prices drop 25% from their peak in 2022.

Those unfortunate names include Austin, Phoenix, San Diego and San Jose. All four have been popular places to buy in recent years.

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And hence it is expected to see a sharp decline. These markets are too hot.

Simply put, home prices are too high and with mortgage rates no longer at 3%, there is an affordability crisis.

Real estate is now on the market and sellers are forced to lower their prices.

Mortgage rate of 6.5% by the end of 2023?

Of course, it should be noted that Goldman’s “revised forecast” calls for a 6.5% 30-year fixed mortgage for the end of 2023.

It’s unclear when their report was published, but the 30-year constant has been trending downward since early 2023.

At the moment, a 30-year fixed mortgage is about 6%, or as low as 5.25% if you’re willing to pay. discount points or two

and there is evidence that mortgage rate May continue to improve as the years go by. Based on inflation expectations that have improved in the past.

last match Consumer Price Index Report shows that consumer prices are falling. It means inflation may have reached its peak.

This could put an end to the Fed’s rate hikes and cause mortgage rates to fall as well.

Either way I believe Goldman’s 6.5% rate is too high for 2023, and that could mean that their house price projections are also overstated.

Mortgage Performance Remains “Extra strong”

CoreLogic Overview November 22

New Report from CoreLogic meet US mortgage performance continues “Exceptionally Strong” as of November 2022

Only 2.9% of mortgages were overdue for 30 days or more, including foreclosure mortgagors, near record lows.

This represents a 0.7 percent decrease compared to November 2021, which was 3.6 percent.

and foreclosed properties (borrowing at any Procedures for foreclosure) was at 0.3%, up slightly annually from 0.2% in November 2021.

meanwhile Default payment default (30 to 59 days overdue) up to 1.4% from 1.2% in November 2021.

But annual mortgage arrears declined for the 20th straight month.

One of the main things that helped homeowners was their large numbers. home section. overall increase
An increase of 15.8% year-over-year in the third quarter of 2022.

which represents an average profit of $34,300 per borrower; and National LTV The latest is below 30%.

Negative equity is still very low.

Q3 2022 Negative Equity

During Q3 2022, 1.1 million mortgaged homes, or 1.9% of the total, were in the negative state.

This means that these homeowners owe more on their mortgage than the current value of the property.

back in 2008 these underwater mortgage It’s a major problem that plagues millions of people. short selling and foreclosure

And while negative equity rose 4% from the second quarter of 2022, it was down 9.8% from the third quarter of 2021.

If pressure on house prices continues to decrease I expect these numbers to get worse. But considering where we are, it’s not 2008 anymore.

According to CoreLogic, negative equity peaked at 26% of mortgaged residential real estate in the fourth quarter of 2009. We were at 1.9%.

even if it increases But many homeowners have fixed interest rates in the 2-3% range and have no interest on sales.

At that moment, you had every motive to leave the house and its poison. adjustable rate mortgage.

The CFPB requires lenders to foreclose as a last resort.

Back in 2008, there was still no Consumer Financial Protection Bureau (CFPB). Today there is.

and they are being strict with lenders and mortgage service who do not treat the landlord properly

Last week they also launched blog post Urges service providers to consider selling a traditional home rather than foreclosure. This is possible because many homeowners have equity at this time.

But before getting to that point service providers should consider “Deferment of payment standalone partial claims; or loan modification

This allows borrowers to stay in their homes. especially when rents are rising.

The main issue here is that lenders and service providers will be heavily scrutinized if they attempt to foreclose.

Therefore, foreclosures are likely to be much lower than in 2008.

Homeowners are now in a better position than in 2008.

I’ve addressed this point many times before. But I’ll say it again

Even unlucky homebuyers who bought property last year at inflated prices with much higher mortgage rates were better than borrowers in 2008.

We’ll pretend their mortgage rate is 6.5% and their home’s value is 20% lower than the purchase price.

There’s a very good chance they’ll have a 30-year fixed-rate mortgage in 2008. There’s an even better chance they have. ARM options. or some kind of ARM

Going forward, we assume our 2022 homebuyers are qualified. using fully documented insurance That means checking income, assets and employment.

Our home buyers in 2008 should be qualified. Identify income and reduce their purchases to zero. Their credit history and work history may also be questionable.

Homebuyers in 2022 are likely to put down a decent-sized down payment, too. So they have skins in the game.

Our 2022 buyers are well aware of the credit score damage associated with late mortgages and foreclosures.

And their property values ​​won’t drop nearly as much as their buyers in 2008. As such, they’ll be less motivated to walk away.

Ultimately, many homebuyers in 2008 didn’t have a homeownership business and weren’t motivated to stay in it.

On the other hand, a recent homebuyer may have just purchased a property at the wrong time. That’s not equal to Housing mistakes.

If mortgage rates continue to fall and stay in the 4/5% range, it could bring even more relief to recent buyers and the market as a whole.

Oddly enough, you may be more worried about an overheating housing market if it happens than an impending crash.

When I’m worried about the unemployment rate going up? Many homeowners will not be able to pay their mortgages.

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