Not only does Vintage Home Loan offer the same traditional mortgage lending options as our competition, but we have leapt into the future of mortgage lending by offering non traditional mortgages as well.
Many news headlines are comparing the current housing market to 2008 due to inflation and the recent housing boom. But don’t fret because many experts agree that the Great Recession is unlikely to be repeated in this current market.
One of the main reasons is that America’s housing market is in far better health now, thanks to the new lending regulations triggered by the Great Recession. Basically, the newly established rules put today’s borrowers on a more solid footing.
Let’s dig in a little deeper.
Currently, there are 2.5 million adjustable-rate mortgages, also known as ARMs, accounting for around 8% of all active mortgages. On record, this is the lowest volume. Right before the Great Recession happened, there were 13.1 million ARMs, representing 36% of all loans at that time. Because it represented such a significant amount of loans, any issues would cause widespread repercussions.
It’s important to note that, in the past, the underwriting on those types of mortgages wasn’t necessarily forthright, but new regulations after the Great Recession changed the rules.
Today, adjustable-rate mortgages are underwritten to their fully indexed interest, and above 80% of today’s ARM originations operate under a fixed rate for the first 7 to 10 years.
It’s also noteworthy that only about 1 million currently active ARM loans are set to reset. Whereas, in 2007, around ten million adjustable-rate mortgages were facing higher resets, significantly leading to the Great Recession.
There was also a housing bubble that contributed to the 2008 recession. A housing bubble, or real estate bubble, is a market condition in which housing prices rise beyond a reasonable price due to increased demand, emotional buying, and limited supply.
After the increased prices, the housing bubble will be followed by a huge decline in housing demand. Experts call it a bubble because the rapid increase in housing prices cannot continue forever, nor are the high home prices justified in the real estate market. Thus the housing bubble will eventually pop, and the house value will drop.
Keep in mind that housing bubbles are not like a hot real estate market. A bubble is a short, breakneck escalation in the housing market. On the other hand, a hot real estate market is constant and longer-term.
Unlike the previous housing boom, it can be said that the increase in housing prices since the start of the pandemic is justifiable. The U.S.A. demographics were already supporting the housing growth, and the desire to purchase a home grew bigger as people saved more and spent more time indoors. The lifestyle change caused by the pandemic caused many Americans to reevaluate their living arrangements.
One of the reasons why there is no bubble is because borrowers are less likely to be able to get a loan without a down payment, except for certain USDA & VA loans. Now, down payments can typically be covered by cash or other credits.
Second, qualifications involving expectations around credit scores are stricter nowadays.
Third, even though house demand has wavered in the past few months, it has remained relatively stable.
The higher down payment amounts and higher credit score requirements will help ensure that another housing bubble won’t happen again.
Experts agree that the 2022 housing market is fundamentally different compared to the one in 2008. So if you’re worried about getting ARMs or improving your credit score, you can take it easy because the housing market won’t crash again.
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