The 2008 financial crisis affected the housing market for years, resulting in unstable housing prices, a flooded housing market, and seriously shaken faith in the housing market as a whole. 10 years later, is it finally time to declare the housing market recovered? Let’s take a closer look at the impact of the 2008 housing market crisis, the current state of the housing market today, and how to determine whether or not the housing market is still considered at risk.
The 2008 Housing Market Crisis
The 2008 financial crisis did not just affect the housing market. It was an all-encompassing crisis that saw serious negative consequences for everything from stocks, businesses, unemployment rates, and everything in between. Yet it was the housing market which was the centerpiece of the financial crisis, which occurred when mortgage lenders greatly reduced the lending restrictions for mortgages and created a market with a surplus of mortgaged homes with owners who could--to be blunt--not afford to keep them. This crisis, combined with a downward spike in the economy, resulted in countless foreclosures, bankruptcies, and plenty of lost homes.
To truly understand the 2008 housing market crisis--and to hope to understand the current state of the market--it’s important to take a look at some actual figures.
In 2005, just a few years before the crisis, the peak of median home prices in St. Louis, Missouri was $152,500. Yet in the first quarter of 2012, in a post-crisis market, the median low dropped all the way down to $98, 343. Today, the median house price in St. Louis is $190,415.
The differences are even more dramatic in areas with traditionally lower market prices. In Belmont, Ohio, the highest median home price in the 4th quarter of 2007 was $77,400. In the first quarter of 2011, the lowest median home price was $19,800. Today, the median home price in Belmont is $105,000.
Has the Housing Market Recovered--Or Not?
Do these rising prices mean that the housing market is recovered? Experts aren't confident that the market is truly recovered yet. Jonathan Miller, the CEO of Miller Samuel, a firm that specializes in real estate appraisal, had this to say: "We're really in a hangover phase. Just because prices are rising doesn't mean we've recovered. [The housing market] is still distorted, and that's because of credit conditions."
Although the market is not fully recovered, it is no longer as risky as it was in the 2008 and pre-2008 era. This is because one of the core causes for the market crisis of 2008 was the frequency of lenders engaging in less than professional mortgage lending tactics. Lenders were approving home mortgages for people who were not financially qualified for them, allowing people to take out mortgages with no income verification, rates that shot up after a few years, or even mortgages without the security of a down payment.
Today, however, that 2008-era mortgage risk is significantly reduced due to one simple fact: it is almost impossible to get that type of risky mortgage in today's market. Not only do lenders have much stricter qualifications for mortgages, most lenders follow the guidelines laid out in a 2010 reform bill that offers lenders legal protection for qualified mortgages that abide by certain provisions. These provisions include only lending to people who meet specific financial criteria as well as no lending out "risky" loans.
No, the housing market is not fully recovered. But the reduction in risk is helping to keep it from falling into the traps that tripped the 2008 market into a downward spiral.
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