Is The Real Estate Market Really Any Safer Today?

As a nation, we like to believe that we’ve learned the collective lessons of the housing market crash ten years ago. We no longer provide people with 100 percent interest-only mortgages designed to make houses that they wouldn’t be able to afford under normal economic circumstances. Over the last decade, homeownership rates have fallen from their peaks, and we’re adjusting to what seems to be a more financially conservative landscape. Things are nothing like they were, right?

It turns out that the answer isn’t that clear cut. While it’s true that people now have to put downpayments on their homes before banks lend them money, the total amount of debt on those properties is still eye-wateringly high. The total outstanding balances haven’t actually changed all that much. The big difference is that mortgages today are much more affordable than they were in the past because interest rates are lower. And there’s no guarantee that that happy situation will last. 

A Lack Of Risky Mortgages Could Shut Out Buyers

Anybody with experience in property conveyancing could see why the real estate market was the way it was in the run-up to the 2008 housing slump. House prices were rising inexorably because of the availability of cheap credit, and the belief prices would go up forever. Anybody could cash in if only they bought a property. 

That, however, ended in disaster, and so the financial world was forced to change. In the years following the crash, we got more financial prudence, and banks began to deny people without deposits access to mortgages. It was a big turnaround for the industry. 

Now, though, experts are sending out a new warning: the lack of risky mortgages could lead to a new housing crisis of its own. 

We’re living through strange times. The dollar value of mortgages has never been higher than it is today. People owe more money than they ever have done in the past because prices are high. But at the same time, it is more difficult for the average person to get access to the money that they need. And that’s what’s putting downward pressure on prices. 

A New Housing Crunch

So, could we be heading for a new crunch? 

Fundamentally, it depends on interest rates. Regulations now prevent some of the lending excesses that we saw before the financial crisis. But because so many people have loaded up on debt since then, we’re now in a much more precarious position. Today, the debt is much more affordable than it was in the past, but if there’s a fundamental change in the nature of the economy, that could change. 

If, for instance, inflation gets out of control, banks could raise their interest rates to compensate, and mortgage payers would suffer, especially those who are not on a regular income. 

Fortunately, it doesn’t look like we’re heading for a meltdown on the same scale of the 2008 crisis, but there’s no guarantee that the real estate market is safe. If interest rates go up, we could see more delinquencies.