Why a Housing Crash is Not Happening

I read a great article in Housing Wire last week written by their Lead Analyst Logan Mohtashami on why a housing crash is not coming our way. Logan says "there are several economic conditions today that were not present before the previous housing collapse that almost ensure that a catastrophic failure will not happen."

First, the mortgages of the last 10 years are incredibly less risky than the previous decade of mortgages. How so? Average credit scores have been >740 nearly every year of the last decade. Second, probably 99% of borrowers' income levels have been verified. Third, the average down payment has been over 10% every year. Finally, over 95% of all mortgage from the last 10 years have been fixed rate loans. Thus, a borrower's mortgage is NOT forcing them to sell!

From 2004-2008 real estate speculation caused home prices to soar in many cities like Phoenix, Vegas, and many cities in Florida. There is very little speculation going on; just good old-fashioned investing of dollars and cents whether the investor is a fix and flip investor or a long-term buy and hold investor. It's all about "SHOW ME THE MONEY!"

Next, homeowners of today have a ton of equity in their homes especially in expensive markets like ours. Even 20% equity in our market now is $100k or more. When homeowners have this much "skin in the game" they will find a way to pay their mortgage even if it's with a credit card.

Lastly, as I wrote earlier in this newsletter housing demand has exceeded supply for several years as witnessed to by the fact that we only had 5,200 homes for sale at the end of July. This was less than 1 month of supply! I remember in 2006 when we had over 30k homes for sale! Once supply hits 5 or 6 months on a consistent basis then I will start to be concerned.