2008 was a monumental year in recent American history. It seemed like overnight, the stock market took a serious nose-dive, plummeting downward, while millions of Americans looked on in horror. Soon after, the job and housing sectors felt the effects of a financial crisis that spanned across the globe. What caused this catastrophic event? Adjustable Rate Mortgages (ARMs). Every news outlet in the country shared with us the damages mortgage companies had done by providing this lending option to uneducated borrowers.
Now, in 2016, unemployment, foreclosures, and widespread financial troubles are a thing of the past. Because of tighter restrictions in the lending business, borrowers are no longer prey for predatory companies. ARMs are still an option, as long as borrowers qualify. With all these precautions, we’re safe from a future meltdown, right? Some people say no. America is getting stronger, but some experts believe we may be headed toward another meltdown. Do you want to know what I think? Keep reading…
Housing 101: the bubble. Where did it all go wrong?
Before we jump into the meltdown piece, let’s brush up on how the housing market works. When a house goes on the market (supply) and is sold (demand), the market is good. Anytime there is a surplus on either side, buyers or sellers, the market shifts into a buyer’s (surplus of houses) or seller’s (surplus of buyers) market. Easy enough, right?
Well, the housing meltdown of 2008 started when the lending companies upset the balance between buying and selling. As unqualified borrowers hunted for the perfect home, the supply for houses sky-rocked, thus creating “the bubble.” Then, the supply shifted from demand to surplus as large amounts of homeowners were evicted after foreclosure. With home prices too low for sellers, the market was stuck.
Eventually the market recovered, and we’re no longer suffering from the backlash of an upset market. But how can we know that we’re not at risk? Here are a few symptoms to look for:
Symptom #1: Too Many Houses
Keep a close eye on the inventory of houses. As of March, the Houston housing market saw a small dip from homes sold between March 2015 and March 2016 by 1 percent. This put more homes on the market and at lower prices than before. But even with this information, the inventory of homes is still in line with a healthy housing market. So, why was there a decrease in sales this year?
Homes can sit on the market for several reasons:
1) Timing. The housing market has just rebounded in the last couple years. Homebuyers who have recently qualified for a home are more than likely not looking to move at this point.
2) Buyer’s or seller’s market. Having a buyer’s or seller’s market is normal in real estate. At this moment, there is a surplus of houses, so we’re in a buyer’s market. In a buyer’s market, buyers tend to spend more time finding the home that is perfect for them. But don’t worry, these homes will sell once the right person comes along.
3) Season. When the March numbers were pulled, real estate wasn’t in its peak season yet. Most buyers and sellers start ramping up their efforts from April to June. We only need to worry about the housing market when home sales show a decrease during and after peak season.
Symptom # 2: Unemployment Rates
This factor plays a huge role in home sales. Without income, borrowers cannot qualify for a home, period. In Houston, we are experiencing high unemployment rates compared to the rest of the nation. The cause—the energy industry. Gas and oil jobs are suffering and the effects have made their way over to the housing industry. But, have no fear, it’s not as bad as it seems.
Unemployment in the energy sector may be high, but other industries in Texas are stable and hiring. When energy jobs rebound, more families will be eligible for homes.
Symptom # 3: Poor Lending Practices
This symptom is an obvious issue and hopefully a thing of the past. Fly-by-night mortgage companies set up shop during recessions to scam desperate lenders looking for alternative ways to finance their homes. When these companies took advantage of homebuyers during the meltdown, the entire housing market changed. Now, borrowers across the nation have learned what to look for in a good lending company. If you’re not sure if a company is good or bad, ask yourself these questions:
1) Loan modifications: Is my mortgage company requesting that I pay money upfront for loan modifications? Asking for money upfront like this is illegal. Never do it, even if they offer money back in the end.
2) Fake lending companies: Is my potential buyer using a scam company to buy my house? Sometimes, financial predators will make up fake companies to get borrowers to pay bogus loans. Eventually, these scams are found out. But be sure to do a thorough background check on anyone who is offering you something for your home. If you’re on the receiving end of the transaction, check out the sellers as well.
3) Paperwork: Do I understand my lending paperwork? The best way to scam an individual is by keeping information from them. Before you sign on the dotted line, make sure you understand all the terms and agreements of your loan.
Beware: As I mentioned before, most of these companies have been shut down, but a few still exist. So be careful and do your research.
Before you go…
Let’s recap. In Houston, we’re seeing a slight surplus of houses and higher than normal unemployment. Borrowers have the income and assets to qualify for legitimate loans with good interest rates. Even though mortgage scamming companies are still out there, the number of qualified buyers outweigh the number of unqualified buyers. More qualified buyers in the housing market means less foreclosures in the long run.