The housing market has definitely stalled recently. Sellers with low mortgage rates are staying in their homes, leaving buyers with few listings to choose from.
And homebuyers face significant economic challenges as median home prices and mortgage rates remain high.
With sellers and buyers at an impasse, misconceptions and outright myths are popping up from both sides about the state of the market on social channels and forums.
However, some of the alleged housing issues that are popping up from time to time are not true. Here are the four biggest myths about the current housing market and why experts say they’re wrong.
1. The housing market is about to crash, just like it did in 2008
Today’s buy-sell deadlock has some potential buyers almost hoping we do area in a bubble – that will burst and lead to many homes available at sale prices.
No one can blame a buyer dealing with the double whammy of higher home prices and interest rates for hoping for a lucky break. But the reality is that the housing market collapse in 2008 triggered a recession that caused record job losses. And losing your job doesn’t further anyone’s financial dreams.
Even if we’re in a bubble now — and most experts say it’s hard to call it until it’s in the rearview mirror — conditions are nothing like they were in 2008.
Unlike today, back then there was a glut of new homes being built, sellers were scrambling to attract buyers, and home buyers could qualify for a mortgage with little or no money down.
“This access to credit included an increase in lenders offering loans to buyers with lower credit scores, or subprime borrowers,” says Chris Ragland, principal at Ragland Capital.
Easy credit may sound good in theory, but some loans were adjustable-rate mortgages with a low “introductory” rate. And once the introductory rate ended and the loan adjusted to a higher rate, some buyers could no longer afford their monthly payments.
“Especially subprime borrowers who experienced a job loss had little or no equity accumulated in their homes,” says Ragland. So when the recession came, they were immediately underwater on their loans and many defaulted.
None of these conditions are true now. Today, almost half of all homeowners have more than 50% equity.
“Laws were passed in 2010 to strengthen verification of a borrower’s ability to repay a loan,” says Ragland.
And the drivers of today’s housing prices are completely different.
“The 2020-2022 price increase was driven by a lack of inventory and extremely low interest rates,” says Bruce Ailion, attorney and real estate professional in Atlanta.
2. The owners have such good rates, they will never sell
One of the biggest complaints about today’s housing market is that there simply aren’t enough homes for sale. And given the unbeatable interest rates available two years ago, when many bought or refinanced, what would the budget seller do?
“Mortgage rates were forced lower than they needed to be, lower than they’re likely to be again,” Ailion says. So when you look at it from a seller’s point of view, it doesn’t make sense to give up a low long-term rate.
But in reality, there are always life events that force homeowners to sell.
People find new jobs and have to move. Growing families need more space or want to be in a certain school district. Retirees downsize or move to a better climate. Seniors move to be closer to family or to assisted living. And their house will be for sale.
3. As rates rise, house prices will fall
Many potential home buyers have hoped that high interest rates would drive home prices down. But the relationship between interest rates and housing prices is complex.
“Interesting is the fact that the increase in interest rates has not resulted in a decrease in prices in most markets”, says Ailion.
In fact, home prices have been all over the place this year and vary from city to city. Home prices are still driven by inventory. And in more popular locations, an updated home that’s ready to move in can still get multiple offers.
“Some buyers are meeting the price and getting married to the house,” explains Ailion. “Today’s high interest rates can be refinanced in the future. And today’s home prices are likely to be higher when those lower interest rates return.”
4. Buyers with good credit are subsidizing buyers with bad credit
This myth exploded after a misunderstanding about government-backed Fannie Mae and Freddie Mac loans and a new fee structure.
Fannie and Freddie are government-sponsored enterprises (GSEs) with a mission to make mortgages more accessible to first-time homebuyers with lower incomes but good credit. They do not issue loans directly, but work with lenders to reduce their risk by guaranteeing certain loans if the borrower defaults.
The organizations also buy other lenders’ loans in the secondary market and sell them to investors as mortgage-backed securities. This allows lenders to continue lending to new borrowers.
Fannie and Freddie are pivotal organizations in the mortgage industry. About 70% of all mortgages are backed by the GSEs. So they can set requirements and set fees.
The new fee structure eliminated initial fees for first-time home buyers. At the same time, it raised fees for other loans that are outside the organizations’ stated mission and borrowers who don’t need persistence: namely, second home loans, high-balance loans and cash-out refinances.
It really had nothing to do with a borrower’s credit score.
“It’s a myth,” says Ailion. “Buyers with poor credit always pay a higher interest rate than buyers with good credit.”
#housing #market #myths #hurt #buyers #sellers
Image Source : nypost.com