Fox Group

Main Content

Are we heading towards an economic crash that will look a lot like 2008 and send the housing market down the tubes?

Buying a Foreclosed Home

Every decent house that hits the market is getting snatched up in days – often with multiple bids and a list of buyers willing to waive all contingencies. The stock market continues to hit unbelievable record highs week in and week out.  “Now hiring” signs are in the windows of nearly all businesses – especially in the service and hospitality industries. The Fed is printing money at unprecedented levels –  by the trillions (with a T) – which has driven the price up on most things. For those of us who remember the frantic 2002 – 2007 economy which ultimately led to our generation’s worst economic crisis, the similarities in how the real estate market feels between now and then are hard to ignore.

Are we heading towards an economic crash that will look a lot like 2008 and send the housing market in a tailspin? Let’s go back a few years and discuss.

It’s 2006: Buy a house – any house- and next year it will be worth 20% more. Invest in stocks and watch your money yield between 15-25% YoY. The hardest choice for anyone with a little extra money in the bank was whether to invest in real estate or stocks because both were on a tear! And to make the decision even harder, with a 620+ credit score YOU could obtain a no documentation, stated income, interest only 100% financed loan.

Here’s what that actually means..

Make up whatever amount you wanted to spend based on income you don’t need to prove you actually earn, pay only the interest and taxes so the principal balance owed never goes down, and do it with 0 cash dollars out of your pocket at closing. The house can be a dump backing up to the interstate in a terrible area, a beach condo next to a sewage plant that hasn’t been built yet, a spec home in the outskirts of Vegas, or a new construction single family property in a great area. They’re all just going up and up! Sign on the dotted line and watch your wealth grow! NO money down or closing costs required so what is there to lose?

Need to sell the property? Price it however you want and don’t worry about fixing it up for the market. There’s a buyer for EVERYTHING in any condition because it’s all going up! Interest rates are 6% on a 30 year fixed mortgage but who gets those? The no doc interest only 3/1 adjustable rate mortgage with a balloon payment will give me a 4% rate and I will definitely sell before 3 years, so I’ll go with that! Or perhaps a no doc reverse mortgage – whereby the mortgage balance increases every month – will get me that low rate I’m looking for..

It’s 2021: Buy a house and next year it will be worth 20% more, so long as it’s in a decent area, well upgraded because most buyers don’t want to fix anything , enough space for a family (because you will likely need 2 incomes to afford it), and ideally with good yard space.

Thinking getting in on the action and want to buy?

First, find a solid lender and get fully approved because there has never been more oversight in lending (thanks to DODD FRANK ACT). You better be prepared because bank appraisals have never been more rigorous so you cannot overpay without the cash on hand to do so, underwriting rules make it so every dime of your income and down payment source is accounted for, and make sure you have saved between 5%-20% minimum because it’s nearly impossible to put down less. Plus make sure you have solid documented employment to back all of this up because the lender will only count you post-tax income when qualifying and definitely do an employment check prior to closing. Write-offs be damned! At least mortgage rates on a 30 year fixed are at historic lows so if I put down 20% I can get a 2.9% or better rate, so most go with that option. But wait, here’s the most important part. If you want to see the rapid appreciation the house you buy better cater to the largest buying demographic in today’s market – the millennials, specifically those who are having kids and demanding more space! If you buy a small condo in the city there’s a very good chance it won’t appreciate at all.

Thinking about selling to cash in at these historic prices? Whatever you do, fix up the house before listing because today’s buyer will pass on yours if there’s too much work to do, declutter the interior by about half, if it’s vacant stage the house so people can see the space, price the property aggressively because buyers won’t see overpriced homes, market it properly with a robust digital strategy (again, thanks millennials), and be prepared to show it to dozens of possible buyers in a short window of time. After all that make sure you pick the buyer who has their ducks in a row with a good lender who can get them to the closing table because again, the process of getting a loan has never been more rigorous. If you do all of that, be prepared to cash in at these record prices!

See the similarities? Comment below with your thoughts.

have questions? Contact Us

    Skip to content