How Today’s Housing Market Is Different From Previous Booms and Busts – Business Insider

How Today’s Housing Market Is Different From Previous Booms and Busts – Business Insider

  • The housing market is not likely to crash, but momentum could slow, suggests analyst John Wake.
  • Hot markets with the highest appreciation could see home prices slide between 10% and 20%.
  • While a lot has changed with lending since 2008, investor and home buyer behavior is very similar. 

When discussing the theme of a potential real estate bubble, there’s been a common trope to almost immediately reject the idea that today’s housing market could face anything like what happened in 2008, says real estate analyst and broker John Wake. Of course, the fallout from the 2008 subprime mortgage crash — and subsequent


— are still fresh in the minds of many people who either bought or sold a home in the last few years. 

But are we in another real estate bubble? 

“Maybe,” says Wake, who explores and analyzes real estate data through his Substack blog, Real Estate Decoded. 

“People always say, ‘It’s not going to be like 2005,’ and yeah, that’s pretty much certain,” he explains. “But we could get into a situation where prices fall 10% or 20%. That’s not going to happen this year, but it could happen in the following year.”

Changes in the mortgage system

Oftentimes, real estate industry professionals and analysts will point to the tightening in lending standards since the 2008 crash as another reason why we won’t see a major bust in the housing market today, but it’s a little more complicated, Wake suggests.

“People say that the loans aren’t as bad and we don’t have all the liar loans, so we don’t have that as much,” Wake says. “But as opposed to when we had the Savings and Loan Crisis, or the bubble before that in the ’70s, we still have a situation where you have somebody who originates a mortgage, somebody who services the mortgage, and somebody who owns the mortgage, and that wasn’t the way it used to be.”

The bubbles since the Savings and Loan Crisis have not only changed the nature of the way that a loan is originated and serviced, but it means that borrowers face a tremendous level of risk as well, Wake suggests.

“It’s still to the advantage of the servicers to foreclose ASAP when somebody gets behind,” he explains. “The mechanics of the whole mortgage system tends to lead to fast foreclosure in accounts like this, so if we get into a down cycle, that’s bad. But the structure back in the Savings and Loan bubble was that they didn’t want to foreclose; they put it off as long as possible and would even rent homes out for years and wait until prices came back up.”

The combination of record-low interest rates, record-low inventory, a flood of stimulus money, and the push towards the work-from-home model, has frequently been cited as …….