The most common question I get today, especially from first time home buyers, is “are we up for a real estate crash similar to 2008?” Although I can’t predict the future. I’ll only give you three reasons why I don’t think we’re even close.
Number one, debt to equity ratio. There is more equity in homes in 2023 than there was back in 2008. We’re in a minor recession. If someone loses their job in 2023, they’re probably not foreclosing on their home because they have so much equity in it, especially considering what’s happened to real estate values just over the last three years. In 2008, there was very little equity in homes. So someone lost their job. They didn’t have any reason to stay in their home. They just let it go into foreclosure.
Number two, credit quality. As you probably know, 2008 credit boxes, very liberal. You could have really low credit scores. Sometimes you didn’t have to show income or pay stubs to get a loan. Feds did a really good job fixing that in 2023. You’ve got to show income that you qualify. You got to have a better credit score. So it’s a totally different credit market. Much safer for the overall economy in 2023 than it was in 2008.
Finally, very important unemployment rate. Right now, we’re still hovering around 4% in 2008. It was up almost 10%. Sure this number could change a little bit and get a little bit higher. But we have jobs. There’s actually still a lot more jobs than there are people looking for jobs. And so what happens with that is as long as you keep unemployment low relative to 2008, we should also be able to prevent those type of market crashes.
If you have any questions about how this may impact you, client or friend, please reach out to me any time. Thanks.