The Great Recession’s Legacy on our Current Real Estate Market
- Although housing prices are back to pre-Recession levels, the bubble will not dramatically burst— history will not repeat itself.
- Why? Studies have shown that rising home prices were not the sole cause of the 2008 Great Recession.
- Today, increases in home prices are driven by steady job growth, an expanding economy, and a limited inventory of available homes
By: Shoshana R. Cohen | Business Development Manager, CenTek Capital Group
A decade of research shows that the setting for the historical housing bubble burst of 2007 was prompted by a combination of wild house flipping by middle credit score real estate investors, over-construction, inadequate financial verification by lenders, and the consequences of subprime mortgages. Today, not only has construction dwindled due to mounting material and labor costs, but the amount of serious mortgage delinquencies and foreclosures is at a decade low too.
In short, many of the factors that fueled the housing crash are simply not applicable to today’s housing market.
As we enter 2018, California’s severe housing shortage will continue to intensify as inventory declines across the state. California’s housing deficit, limited land, the increasing cost of construction and labor and increasing competition from the international market will fuel dramatic increases in home prices across CA. On a wider national scope, only 0.7 new households are built for each household formed. Simultaneously, the American population continues to expand as the largest, most diverse, and most educated generation in history- Millennials- joins the workforce. Ultimately, competition for a thin supply of housing is fueling today’s housing prices, a very different driver than the housing price increases of the pre-bubble burst era.
Today, many aspiring home-owners are encountering an affordability challenge. In addition to rising home prices, student debt is also hindering Millennials’ ability to pull together a down payment. Thus, innovative financing options are key. Over the course of the last decade, our team has holistically examined the Great Recession, its impact, and its legacy on the current housing market. While there are most certainly many examples of flipping homes today, these investment properties are more heavily regulated and financing plans are not as wild as before. Financial policies and regulations like The Dodd-Frank Act reshaped the lending arenas, creating a form of stability. However, despite the tightening standards over the course of the last decade, there has been an easing of lending policies. Essentially, relatively high market confidence has made access to mortgage credit available and attainable to homebuyers.
Our top 3 insights on today’s market
Insight #1- Response Time and Teamwork are Crucial
The clock is ticking. Prompt response time throughout the home-buying process is crucial! We take pride in always picking up the phone M-F 7 AM- 7 PM and responding after hours on email. In this competitive market, our latest strategy is to work with our clients even before they find a dream house. We will always take time to correspond with your team of financial professionals to strengthen your financials and tax returns to their fullest potential.
Insight #2- Multiple offers are the norm
In this aggressive market, buyers compete against multiple bids. CenTek’s newest strategy is to preemptively work with clients, even before they find their dream house. If necessary, our team will work with your client to maximize your tax returns, credit scores, and other financials to their fullest potential. Once we are familiar with their information, our in-house underwriters can write detailed pre-approval and approval letters customized towards both their financial profile and their desired property’s specifications.
Insight #3: Sellers prioritize offers that are seamless, close fast, and waive contingencies
As we move into 2018, pre-approval and approval letters have shifted into a new dimension. Their weight is gaining more traction and our highly-regarded letters oftentimes compete against multiple bids and/or all-cash buyers. In some cases, this means that we can go into the offer and waive appraisal and loan contingencies, making the offer look bulletproof.