Helpful InformationStatistical Information May 20, 2020

Are We Headed For a Repeat of the 2008 Housing Meltdown?

The pressure the COVID-19 global pandemic is putting on the economy is a reality. As real estate brokers, we take great pride in having the honor of being your trusted advisor when it comes to your investment in the housing market and protecting the value of your home. We have been asked several times, “Is this the Great Recession all over again?”

At Windermere, we have continued to rely on the expertise of Matthew Gardner, Windermere’s Chief Economist. This is a chart he shared from Black Knight Financial comparing the housing market as we headed into this global health crisis versus the start of the Great Recession in 2007. Matthew predicted the Great Recession and does not shy away from heeding the truth, even if it is not great news. We trust him and I hope you do too.


Some key points of note:

With the share of homeowners having less than 10% equity being materially lower in 2020, in the event of an economic contraction, the likelihood of owners owing more on their homes than they are worth is significantly less, which allows more owners to use their equity to get through challenging times if needed and keep their homes.

Average Current Loan to Value (LTV) is also lower—we owe less on our mortgage balances reducing the amount of leverage.

Average Debt to Income (DTI) at origination is similar, but prior to the Great Recession, many borrowers’ incomes were not vetted thoroughly prior to loan approval which created false qualificiation—remember hearing “stated income loans” then?

Average Current Credit Scores are now significantly higher. Coming into 2020, borrowers were in such a good position, the Mortgage Delinquency Rate of 3.3% was the lowest on record.

Payment to Income Ratio is the % of income needed to service a mortgage. Despite home prices climbing faster than incomes, the lower amount for 2020 is primarily a function of lower interest rates which the majority are fixed.

The last 4 data sets typify the primary reason we saw the housing market bubble burst in 2007. When rates reset on Adjustable Rate Mortgages (ARMs), homeowners were crippled with massive monthly payment increases. Now, as the Federal Reserve has lowered rates, many homeowners with ARMs will likely see their rates drop and the amount of ARMs are down by 75%.

Bottom line, we are heading into this economic challenge with a much more formidable foundation based on more stringent lending practices, higher equity levels, and we are anticipating a shorter 1-2 year V-shaped recovery, compared to the long U-shaped recovery of the 5-year Great Recession. In fact, we have seen pending sales rise over the last three consecutive weeks, some even with multiple offers.

Every neighborhood and every price-point has its own story. Please reach out with any questions or concerns. It is our goal to help keep you informed and empower strong decisions.


To access Matthew Gardner’s explanation via video please access: