Real estate investors have largely done well for the past few years. But with higher interest rates, things could be about to change.
The U.S. Federal Reserve raised its benchmark interest rates by 0.75 basis points on Wednesday, marking the third such hike in a row.
Higher interest rates translate to bigger mortgage payments — not good news for the housing market. But cooling down housing prices is part of what needs to be done to bring inflation under control.
What would you do if you had an emergency vet bill worth $2k tomorrow?
Too many Americans are still missing out on cheaper car insurance
Boomer’s remorse: Here are 5 big purchases you’ll (probably) regret in retirement
This investing app turns spare change into a diversified portfolio
“For the longer term what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and that people can afford houses again,” Fed Chair Jerome Powell said on Wednesday. “We probably in the housing market have to go through a correction to get back to that place.”
“From a sort of business cycle standpoint, this difficult correction should put the housing market back into better balance.”
Those words might sound scary, especially to those who lived through the last financial crisis — where the housing market went through a very, very difficult correction.
But experts say there are good reasons to believe that regardless of how things play out, it won’t be a return to 2008.
Higher lending standards
Questionable lending practices within the financial industry were a major factor that led to the housing crisis in 2008. Financial deregulation made it easier and more profitable to give out risky loans — even to those who could not afford them.
So when an increasing number of borrowers could not repay their loans, the housing market cratered.
That’s why the Dodd-Frank Act was enacted in 2010. The act put restrictions on the financial industry, including creating programs to stop mortgage companies and lenders from giving out dicey loans.
Recent data suggests that lenders are indeed more stringent in their lending practices.
According to the Federal Reserve Bank of New York, the median credit score for newly originated mortgages was 773 for the second quarter of 2022. Meanwhile, 65% of newly originated mortgage debt was to borrowers with credit scores over 760.
In its Quarterly Report on Household Debt and Credit, the New York Fed stated that “credit scores on newly originating mortgages remain quite high and reflect continuing stringent lending criteria.”
Homeowners in good shape
When home prices went up, homeowners built more equity.
According to mortgage technology and data provider Black Knight, mortgage holders now have access to an additional $2.8 trillion in equity in their homes compared to a year ago. That represents an increase of 34% and over $207,000 in additional equity that is available to each borrower.
Moreover, most homeowners did not default on their loans even at the height of the COVID-19 pandemic, where lockdowns sent shockwaves across the economy.
Of course, it was those mortgage forbearance programs that saved the struggling borrowers: they were able to pause their payments until they regained financial stability.
The result looks great: the New York Fed said that the share of mortgage balances 90 days plus past due remained at 0.5% at the end of Q2, near a historic how.
Supply and demand
On a recent episode of The Ramsey Show, host Dave Ramsey pointed out that the big problem in 2008 was a “tremendous oversupply because foreclosures went everywhere and the market just froze.”
And the crash wasn’t caused by interest rates or the health of the economy but rather “a real estate panic.”
Right now, the demand for housing remains strong while supply is still in shortage. That dynamic could start to change as the Fed tries to curb demand by hiking interest rates.
Ramsey acknowledges the slowing rate of increase in home prices right now but doesn’t expect a crisis like 2008.
“It’s not always as simple as supply and demand — but it almost always is,” he says.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Sylvester Stallone and Wife Jennifer Flavin Call Off Divorce: All About Their ‘Rocky’ Romance
Sylvester Stallone’s wife Jennifer Flavin largely flies under the radar, despite frequently appearing on his arm in public–until recently, literally and figuratively. Stallone had a large tattoo of Flavin’s face surrounded by roses on his right bicep! You can see it somewhat in the second slide …
China sentences ringleader of brutal attack on women at Tangshan restaurant to 24 years in prison
The main perpetrator involved in the brutal assault on four women at a restaurant in Tangshan, China, has been sentenced to 24 years in prison. On Friday, the Guangyang District People’s Court in Langfang, Hebei province, determined Chen Jizhi, 41, to be the ringleader of a gang that has conducted criminal activities since 2012. Chen and four other men were caught on camera violently beating four women at a barbecue restaurant in Tangshan on June 10 after one of the woman rejected his sexual proposal.
I’m the chief economist of the National Association of Home Builders. These are the 5 things you need to know about the housing market now
Many aspiring homebuyers are watching as home prices begin to fall and wondering: What do I need to know about the housing market now? Since joining the National Association of Home Builders (NAHB) in 2005, Dietz has served as both chief economist and senior vice president for economics and housing policy for the association, where he conducts housing market analysis, economic forecasting, industry surveys and housing policy research. Here are this thoughts on the housing market now.
Democrats say they expect a pro-Republican ‘MAGA surge’ in fall elections
Democratic consultants are telling party donors that while the shifting political landscape will give their candidates a fighting chance this fall, they are likely facing a huge increase in Republican turnout.
One man’s plea deal may shed light on Brett Favre’s possible ties to a $70 million Mississippi welfare scam
We may soon find out more about NFL Hall of Famer Brett Favre’s potential involvement in a massive welfare scandal in his home state of Mississippi.
America’s Fastest-Growing Restaurant Chain Is the Most Underrated
There’s no shortage of places to get a perfectly acceptable sandwich. You can always head to your neighborhood convenience store for a chicken salad sandwich, pull together a simple recipe of your own at home, or rely on one of the many chain sub restaurants across the country. If you tend to do the latter, forget the Subways, Jimmy John’s, and even the Quiznos of the world, because a new chain is about to become top dog in the sub sandwich wars, and deservedly so. It’s time for Jersey Mike’s to
‘It’s Time to Buy on the Dip’: Cathie Wood Snaps Up These 2 Stocks Under $10
On Wednesday, the Fed bumped up interest rates again, its third 75-basis point hike since June, and signaled that there could be two more such hikes by the end of this year. The conventional wisdom has the Fed acting properly, and aggressively, in an attempt to counter inflation raging at 40-year high levels. But conventional wisdom isn’t always right – and we can learn a lot by consulting the contrarians. Few top investors are more contrarian than Cathie Wood. The founder and manager of ARK Inv
Why Warren Buffett Doesn’t Buy Real Estate And Most Other Investors Shouldn’t Either
Warren Buffett’s long-term investment strategy has proven to be successful through virtually all market conditions over the past several decades – recession, high inflation and deflation. If there’s one thing that’s made Buffett one of the most successful investors in history, it’s his commitment to his strategy. A countless number of new investment techniques and algorithms have come and gone over the years, but Buffett has maintained his relatively simple strategy of picking solid companies an
Investor’s Business Daily
How To Lock In $75,000 Worth of 9.62% Treasury I Bonds
You have just a few weeks to pounce on Treasury I bonds’ sky-high interest rate. Also called Series I savings bonds, their interest rate is 9.62%.
This Company Now Owns Enough Single-Family Homes To House The Entire Country Of Iceland
Institutional ownership of single-family homes has been a controversial topic over the past year. Investors purchased a record-high number of rental properties while many would-be homeowners were priced out of the market. The largest owner of this asset class in the U.S. is Invitation Homes Inc. (NYSE: INVH), a real estate investment trust (REIT) with a portfolio of about 83,000 single-family rental homes as of the end of the first quarter this year. The company’s portfolio is mainly made up of