It’s nearly impossible to avoid scary headlines and lot’s of “experts” predicting a massive housing crisis like we saw in 2008. But it’s not 2008 again. Lot’s of things have changed to prevent a repeat of 2008. Here are several reasons why there’s no need to panic.
NINJA loans (no income, no job, no assets) have disappeared
Housing Crisis of 2008: Predatory lending standards allowed for lenders to make loans with very little verification of the borrowers ability to repay. The loan originators simply made the loans knowing that the loan would be sold off to investors (and “insured” by third party insurance companies) giving them very little incentive to qualify the borrower. It was a scheme that was bound to fail.
Today: The Dodd-Frank act that passed in 2010 put a stop to the predatory and lax lending standards that tanked the economy and took advantage of consumers. Today, we have much more qualified homeowners that are less likely to face foreclosure as the economy softens.
Owners have equity. And in most cases, lots of equity.
Housing Crisis of 2008: Leading up to the crash, lax lending standards not only allowed the unqualified to purchase a home, but they could also do so with little or nothing down (and in some cases, even more than the purchase price). Many of the loans were also “interest only” so homeowners weren’t building equity either. It didn’t take much of a change in home prices for them to be underwater and decide to walk away.
Today: Not only did buyers have to be much more qualified to purchase, most put down sizable down payments (20%+). Add in rising home prices over the last decade and most homeowners have lots of equity to absorb any downturn. So even if prices came down 25% in the Conejo Valley (which would be more than the last housing crisis), most homeowners would still be way above water and wouldn’t just walk away.
There are no adjustable rate mortgages set to adjust
Housing Crisis of 2008: Adjustable Rate Mortgage (ARM) loans were very common. With a typical ARM loan, the loan is locked at a lower than market rate for a set period of time. Typically 5 or 7 years. Once the lock expires, it adjusts to current mortgage rates. Back in 2008, ARMs expired and many borrowers were shocked to see their payments skyrocket to a payment they couldn’t afford. This led to massive defaults only compounded by the rise in unemployment and the fact that many home owners bought with little or nothing down.
Today: ARMs have been almost nonexistent. Why do an ARM when you can lock in an historically low rate for 30 years? So even though rates are rising, most current homeowners will not be affected.
The job market is still strong
Housing Crisis of 2008: Massive layoffs hit the state hard. CA had about 10% unemployment leaving many homeowners no choice but to walk away.
Today: Unemployment in CA is very low (about 4%). Most business owners complain that their biggest challenge is finding workers. A recession may cause hiring freezes and layoffs, but likely not enough to have a significant impact on the housing market.
We’re still not building enough homes to keep up with population growth
Housing Crisis of 2008: Speculative home building popped up everywhere. Homebuilders knew the demand was there; all they had to do was “build it and they will come”. Once the bottom fell out, many builders cut way back or disappeared entirely. As a result, we have not had enough new home building to keep up with population growth.
Today: The Millennial generation (our largest in history) are now at home buying age. We simply don’t have enough homes to meet the demand. In addition, baby boomers were expected to downsize over the last decade freeing up homes for new buyers. Instead, boomers understandably decided to keep their low property tax and mortgage rate and stay put.
Prices will likely adjust
Housing Crisis of 2008: Home prices were so artificially inflated that it didn’t take much for a collapse. Nationwide, home prices dropped about 30% during the Great Recession, but less in the Conejo Valley.
Today: Conejo Valley home prices have risen steadily over the last decade or so. And in the last couple of years, it’s accelerated to an unsustainable rate that was never expected to last forever. With mortgage rates doubling in just a few months, something has to give and that’s likely to be home prices. We should begin to see appreciation drastically slow, but slowing down does not equal going down. Depending on what happens with both mortgage rates and the economy overall, we might see some slight depreciation. But don’t expect any kind of a huge price drop. Multiple offers continue to be common in spite of the higher rates.
People still want to escape the city and move to the Conejo Valley
Housing Crisis of 2008: The Conejo Valley weathered the storm pretty well in 2008. Homeowners tended to have more equity and were less affected by the recession. We also didn’t have the speculative home building like we saw in other areas.
Today: The demand for the Conejo Valley has only increased since the pandemic. We have had a large influx of buyers from the city and neighboring valley as the homeless issue exploded. Work-from-home flexibility allowed people the ability to move further out as well.
Bottom Line…
There are a lot of highly sensational headlines out there that don’t reflect what’s going on in our local market. Yes, there are challenges ahead, but the sky isn’t falling. We’re simply reverting back to a more normal pre-pandemic market where some homes sell quickly and others may take a month or so – a healthier and more sustainable market. No one has a crystal ball, but for now, I remain cautiously optimistic.
Are you looking to buy or sell a home in the Conejo Valley?
Hi, I’m Michael.
I’d love to help you get to know the area and homes for sale. And as a local Realtor®, I can help you find and buy your new Conejo Valley home!
