For the first time since the pandemic, mortgage rates are rising, and the housing market is cooling. While homes are still not affordable for many, there is a concern among those who are already homeowners that they will soon be seeing a slump in the value of their housing as well.

The slowdown in real estate has people wondering whether they would see a repeat of the 2007-2009 Great Recession.

Fortunately, real estate experts do not see this phenomenon recurring. The US housing market is in much better health these days, thanks to new lending regulations post-recession.

Today, lenders have become much stricter when it comes to lending, as evident by the record-high average credit score of 751. At the same time, the amount of debt that a homeowner has against the home value has also fallen dramatically. In addition, there are not as many risky loans and the lowest volume on record of adjustable-rate mortgages (8%). Moreover, there are only 3% of mortgages that are behind on payment, despite the spike in delinquencies in 2020, during the first year of the global pandemic.

What Happened During The Great Recession?

From the mid-1990s till the mid-2000, the average price of housing rose dramatically and peaked in 2007. According to the US census data, the average price of a house in 2007 was $314,000 as compared to $207,000 in 2000.

In early 2007, however, the United States experienced a bursting of the housing bubble. Millions of people lost their jobs and homes when the housing market slumped due to artificially high home prices, loose lending practices, and a high number of unsustainable subprime mortgages.

Americans experienced financial ruin as the values of their homes plummeted and the interest rates on subprime mortgages spiked. Many people experienced almost double the mortgage payments in some parts of the country, resulting in a higher number of loan defaults. As a result, many people lost their homes, which resulted in an economic collapse.

As the crisis grew, it created a domino effect throughout the financial world as banks around the world and in the US began to fail. Ultimately, the US government had to intervene to control the damage.

The State of the Current Housing Market

Even though we are witnessing a real estate market slowdown, the industry still remains quite strong, and experts expect it to remain strong for several more years, but with a slower price appreciation. A lot of people are now wondering whether it is a good time to buy a home.

One way to determine whether the time is ripe for investing in the housing market is to check the performance of the stock market. The stock markets can help you figure out the earnings expectations about half a year to two years in advance.

In 2021, the S&P closed at a nearly 275 gain after a strong 2020. But the first half of 2022 has been a bit rocky for stocks, bonds, and cryptocurrency. To investigate in-depth, it is a good idea to look at sector performance as it relates to a location with large exposure.

Experts predict that the stock market will close on a high note this year as major indexes will end 2022 higher. Stocks also correct quickly, so if the stock market is correcting quickly, you need to pay close attention to any housing investments you are making.

Costs to Build New Homes Have Risen

The real estate market moves in a boom and bust cycle due to new construction to meet new housing demand, leading to oversupply and lower prices for a short time. The bust phase can last anywhere between 1 to 3 years.

In 2022, builders experienced a higher cost of constructing new homes. In addition, the sector also witnessed a shortage of construction labor, which prevented developers from building the new homes as fast as they wanted. As a result, you may expect some housing price upside in the remaining year, though the appreciation is bound to be slow.

More people are now spending time at home since the pandemic. Taking into account the local government regulations to construct new home units and the supply of new homes is currently lagging behind demand. However, heartland cities that offer plenty of land are seeing a supply of new housing.

Hence, it would be worth your while to keep an eye on the supply and demand dynamics of the housing market.

Keep Paying Your Home Mortgage

If you keep paying the mortgage on your home, it is expected you will not suffer any adverse effects due to the changing housing market. As we mentioned before, the housing market is cyclic and tends to recover in a few years.

Therefore, if you buy a home at the top price and a few months later, the house prices slump, and your home loses its value, do not panic. Keep refinancing your mortgage to prevent your equity from being wiped out. If your loan-to-ratio value is over 80%, you will not get the best refinancing rates, even with an excellent credit score. Hence, make sure you have at least 20% of home equity for good refinancing options.

Therefore, if you notice the housing market slumping, one of the first things you need to do is to check for refinancing. At Integrity Mortgage (NMLS #1692497), we can help you get access to the best lenders in the business so that you can get the best rates.

Buying a house at the top of the market and then seeing its value go down in a couple of months is heartbreaking. However, you can make the best of the situation by keeping a hold on your real estate. Over time, your house will be able to recover its value, and if you keep reinvesting, you will see that it accounts for a small portion of your total net worth.

Taking Out a New Loan

Some people will also benefit from taking out a new loan. Even though mortgage rates are now rising, it is accompanied by a real estate market slowdown. Home prices will come down, but mortgage rates will continue to rise, which means buying a home in the coming years will be more expensive.

So if you have the financial health to do so, consider looking for a new, more favorable, loan before the mortgage rate skyrockets. Through quick action, you can avoid paying astronomical mortgage rates in the coming future.