Realty News

Here's why this housing market downturn is unlike the last.

Jan 7, 2023

The once hot housing market, despite the fact that mortgage rates have been rising rapidly, is now cooling off. While home prices are still high in historical terms, there is concern that they will fall.

All this leads to people wondering: Is the current housing market in the exact same position as it was 10 years ago, when 2007-08 crashed and caused the Great Recession.

The short answer: No. The American housing market is in much better shape today. This is partly due to the new lending regulations that were created after the meltdown. Those rules put today's borrowers on far firmer footing.

The FICO credit score (credit score) of the average borrower is 751, which is an unprecedented high for the 53.5million home mortgages with first lien. In 2010, it was 699, two years after the financial crisis. Credit quality has reflected lenders' stricter lending policies.

Due to the pandemic-fueled demand in the last two years, home prices have also risen. Today's homeowners have record amounts of equity in their homes. So-called tappable equity, which is the amount of cash a borrower can take out of their home while still leaving 20% equity on paper, hit a record high of $11 trillion collectively this year, according to Black Knight, a mortgage technology and data provider. This represents a 34% rise in tappable equity compared to a year earlier.

However, leverage, the homeowner's debt to the home, has been falling dramatically.

The United States has the lowest total mortgage debt, at 43% of actual home values. Negative equity, or when a borrower owes a greater amount on the loan that the home is worth is virtually nonexistent. This compares to the nearly 1 in 4 borrowers that were underwater in 2011. Just 2.5% of borrowers have less than 10% equity in their homes. This provides a substantial cushion in the event that home prices fall.

Not as many risky loans

There are approximately 8% of active mortgages at the moment that have adjustable-rate loans, or ARMs. There are currently 2.5 Million ARMs. This is the lowest ever recorded volume. You can fix ARMs for terms between five, seven and ten years.

In 2007, 36% of all mortgages were issued to ARMs. Back then, underwriting for these types of loans was not perfect. But new regulations in the wake of the housing crash changed the rules.

Today's Arms are not only insured to their fully-indexed interest rate but more than 80 percent of today's originations operate at a fixed rates for the first seven to ten years.

A sign posted outside a Hercules house on Tuesday May 31, 2022. Homebuyers are facing a worsening affordability situation with mortgage rates hovering around the highest levels in more than a decade.


Today, around 1.4 million homeowners with ARMs are being subject to higher rate resets. Because of this, they will have to pay higher monthly mortgage payments. That is unquestionably a risk. In 2007, 10 million ARMs had to face higher resets.

Mortgage delinquencies are low

Only 3% of mortgages are due and mortgage delinquencies now stand at an all-time low. Even with the sudden rise in delinquencies over the first year, there are now fewer past due mortgages than ever before the pandemic. Pandemic-related, mortgage forbearance programs helped many borrowers recover. But there are still 645,000 people in those programs.

Andy Walden of Black Knight's vice president of enterprise Research, stated that "The mortgage industry is on a very historical strong footing." "Even those millions of homeowners that took out forbearance due to the pandemic are generally doing well.

There are however approximately 300,000. Borrowers who have exhausted all pandemic-related forbearance programmes and are still in default. While mortgage delinquencies are still low in history, they have trended higher lately, especially for loans with more recent originations.

"We'll want to keep an eye on this population moving forward," Walden said.

According to the Mortgage Bankers Association the availability of mortgage credit is far below the level it was just prior to the pandemic. It suggests tight standards. However, lenders have lost half their business due to rising rates. This could lead them to be more aggressive in lending less credit-worthy borrowers.

According to Black Knight, the biggest problem in the current housing market is affordability. This record low is in at least 44 major cities. Although inventory is beginning to increase, it still remains at half the pre-pandemic level.

According to Danielle Hale, Chief Economist at, "Rising inventory may eventually slow home prices growth, but the two-digit pace so far has shown remarkable sticking capacity," she said. "As higher housing prices begin to exceed some buyers' financial resources, those who continue to be in the market will enjoy comparatively less competitive conditions later on in the year," Hale said.

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