Despite rising prices, riskier loans and mortgage defaults are down.

Why is the ongoing housing crisis different?

As a result of rising mortgage rates, the once-scorching real estate market has begun to slow. Although they are currently at all-time highs, housing prices are anticipated to continue falling.

Many people are curious as to whether or not the current state of the housing market is comparable to that of the market in 2007-2008, when the breakdown was the cause of the Great Recession.

I’m afraid not. The current real estate market is in much better shape. After the market collapse, new lending rules were implemented, which was helpful. Borrowers in today’s market benefit from these rules.

751 is the average FICO score for borrowers in America’s 53.5 million first lien mortgages, according to the FICO scoring system. It had dropped to 699 by the time two years had passed since the financial crisis. Because of stricter lending standards, there has been an improvement in the quality of credit.

In the prior two years, property prices have been driven upward by demand that was fueled by the pandemic. The equity held by today’s homeowners is at an all-time high. According to Black Knight, a provider of mortgage technology and analytics, tappable equity, also known as the amount of cash a borrower may take out of their home while still leaving 20 percent equity on paper, reached a new high of $11 trillion this year. This figure represents the amount of cash a borrower may take out of their home while still leaving 20 percent equity on paper. That is an increase of 34% as compared to the previous year.

The homeowner’s leverage, which is their total debt in comparison to the value of their home, has significantly decreased.

A historic low of less than 43 percent of property values is represented by total mortgage debt in the United States. Negative equity, which occurs when a borrower owes more on a home than it is worth, is an extremely uncommon situation. In 2011, 1 in 4 borrowers were underwater. There are 2.5 percent of homeowners that have less than 10 percent equity in their homes. This gives a large cushion in the event that home prices continue to fall.

Moving Markets

Considerably fewer loans

There are currently 2.5 million adjustable rate mortgages (ARMs), which accounts for 8% of all active mortgages. An all-time low. ARMs have a rate that is fixed for a period of 5, 7, or 10 years.

In 2007, there were 13.1 million adjustable rate mortgages, which represented 36 percent of the total number of mortgages. The housing market crash brought forth new regulations, although back then the underwriting of loans was unstable.

More than eighty percent of adjustable-rate mortgages originated today have a fixed rate for the first seven to ten years of the loan’s term.

There are 1.4 million adjustable-rate mortgages (ARMs) that are about to have their rates adjusted, which will result in higher monthly payments. It’s a gamble. In 2007, 10 million adjustable rate mortgages had their interest rates increased.

Low mortgage defaults

Only three percent of mortgages are now past due at this time. Even after the first year of the pandemic, there are much fewer mortgages that are overdue than there were previously. There are still 645,000 borrowers participating in mortgage forbearance programmes that are connected to the epidemic.

Three hundred and thousand delinquent borrowers have used up all of their options for pandemic-related deferment programmes. Even though they are at historically low levels, mortgage delinquencies have been on the rise, particularly for newly issued loans.

Mortgage credit is significantly more difficult to obtain now than it was before the pandemic, according to the Mortgage Bankers Association. Since rates began soaring, lenders have seen a loss of roughly half of their earnings, which may cause them to be more aggressive with consumers who do not have a good credit history.

At least 44 major markets are experiencing affordability levels that are at all-time lows. Even if the inventory is growing, it is still just half of what it was before the pandemic.


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