Homeownership is one of the biggest life goals of many and is often regarded as the American Dream. Before the mid 1900’s less than half of the country owned their home while after World War II many veterans sought the assistance of the GI Bill to purchase their first house. Since this time the rate of homeownership has grown to a current level of over 65%. The growth has been on a steady rise with the exception of a few years between 2006 and 2008 during the last bust in the market. Experiencing that dip in our not too distant past may make many concerned that we may see this dip repeat soon again. To compare the situation from then to now, here is a closer look at some differences.
Why The Market Crashed Then
Back in 2006 there were many foreclosures in the real estate market that forced home values down tremendously. What happened was many buyers were not truly qualified for the mortgages that they were approved for. Also, many homeowners had cashed in on a significant amount of equity on their homes. When prices had dropped they found themselves upside down where they walked away from their homes which added even more foreclosures to the market resulting in lower neighborhood home values.
Why The Market is Different Today
Today’s real estate market is different for two primary reasons. First, demand for housing is actually real. Back around 2006 banks would create demand by lowering lending standards so that a larger pool of buyers could qualify for homes that normally would not. Today’s buyers as well as those who are refinancing their existing homes are facing much stricter qualifications than back then. So by contrast nowadays the demand for homeownership is real especially where the importance of home has increased in value due to the recent pandemic.
Another reason why today’s market is different is that homeowners are not using their homes like they did back then as personal ATMs. In the early 2000s many were thinking the rise of home prices would not come to an end so they were pulling out equity and buying more homes, cars or other high ticket items. Soon after when prices dipped they found themselves under water leading to many foreclosures. Nowadays homeowners have not forgotten what happened then and have learned from it and are not following this same behavior.