When mortgage rates go up, the once-hot real estate market cools down. Even though home prices are still very high, they are expected to go down.
People wonder if the housing market today is in the same situation as it was in 2007 and 2008, when the meltdown caused the Great Recession.
Sorry, no. The market for homes is better now. After the collapse, new rules about lending helped. These rules help people who want to borrow money today.
The average FICO score for the 53.5 million first lien mortgages in the United States is 751. It was 699 two years after the financial crisis. Because lenders are stricter, the quality of credit has gone up.
In the past two years, home prices have gone up because of the fear of a pandemic. Homeowners today have more equity than ever before. Black Knight, a company that makes mortgage technology and analytics, says that tappable equity, or the amount of cash a borrower can take out of their home while still leaving 20 percent equity on paper, hit a new high of $11 trillion this year. That’s a 34 percent increase from last year.
The homeowner’s leverage, which is how much debt they have compared to how much their home is worth, has gone down a lot.
Total mortgage debt in the U.S. is less than 43% of property values, which is a record low. Negative equity is rare, which happens when a borrower owes more on a home than it is worth. In 2011, 1 in 4 borrowers were underwater. 2.5 percent of people who own their own homes have less than 10% equity. This gives a big cushion in case property prices go down.
Fewer bad loans
There are 2.5 million ARMs out there, which is 8% of all active mortgages. Lowest ever. Fixed-rate ARMs last for 5, 7, or 10 years.
In 2007, there were 13.1 million adjustable-rate mortgages, which was 36% of all mortgages. Back then, it was hard to get a loan, but when the housing market crashed, the rules changed.
More than 80% of adjustable-rate mortgages taken out today have a fixed rate for the first seven to ten years.
1.4 million ARMs are about to have their rates changed, which means that their monthly payments will go up. It’s a gamble. In 2007, 10 million ARMs changed to a higher rate.
Few mortgages go bad
Right now, only 3% of mortgages are behind on payments. Even after the first year of the pandemic, there are less mortgages that are behind on payments than there were before. There are still 645,000 borrowers in mortgage forbearance programmes because of the pandemic.
Forbearance plans related to the pandemic have been used up by 300,000 late-paying borrowers. The number of people who are behind on their mortgage payments is still very low, but it has been going up, especially for new loans.
The Mortgage Bankers Association says that it is much harder to get a mortgage loan now than it was before the pandemic. Since rates started going up, lenders have lost almost half of their income, which could make them tougher with people who don’t have good credit.
At least 44 big cities have the lowest home prices on record. Inventory is rising, but it is still only half of what it was before the pandemic.
