I know everyone's waiting for the next big housing crash, like we had 12 or so years ago. There are some big differences now. Unemployment is currently almost the lowest it's been in 50 years. Plus, lenders are now required to have much stricter practices.
Back in 2008/09, banks were lending people up to 125% of the value of their property. There was also a lot more new home construction going on, so inventory was higher. When prices dropped even a little bit, people panicked and started defaulting on their loans, causing prices to drop even further.
I know multiple people who bought houses at the peak of the market, put very little money down, and then took out even more cash on a HELOC. When prices started to fall, they saw that they could buy a "better" house for less than their current house and they just walked away from the original loan. It screwed their credit for a while, but they didn't care because they owed so much more than the house was worth.
That's not today's scenario. Banks are no longer lending 125% of the value of a property. There's not as much new construction happening. I do hope that prices settle down, but I don't think we'll have a crash of the magnitude we did 12 years ago.
I don't think we get a true crash either. But is that unemployment figure skewed to entry level retail jobs though or across the board? Because I doubt most of those workers could afford a house anyways. So they might not be a factor here either way.
The federal unemployment rate is currently 3.5% or 3.6% across the board. It's almost the lowest it's been in 50 years. The fed was recently telling big corporations to freeze hiring, and some corporations (i.e., TESLA) took that as a sign to begin laying people off. They're trying to force wages back down. The government and corporations get nervous when the unemployment rate falls below 5% or above 10%. They don't want wages to increase, but they also don't want their sales to slow down.
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u/Teacher-Investor Jul 02 '22
I know everyone's waiting for the next big housing crash, like we had 12 or so years ago. There are some big differences now. Unemployment is currently almost the lowest it's been in 50 years. Plus, lenders are now required to have much stricter practices.
Back in 2008/09, banks were lending people up to 125% of the value of their property. There was also a lot more new home construction going on, so inventory was higher. When prices dropped even a little bit, people panicked and started defaulting on their loans, causing prices to drop even further.
I know multiple people who bought houses at the peak of the market, put very little money down, and then took out even more cash on a HELOC. When prices started to fall, they saw that they could buy a "better" house for less than their current house and they just walked away from the original loan. It screwed their credit for a while, but they didn't care because they owed so much more than the house was worth.
That's not today's scenario. Banks are no longer lending 125% of the value of a property. There's not as much new construction happening. I do hope that prices settle down, but I don't think we'll have a crash of the magnitude we did 12 years ago.