Despite similarities in rapid housing growth, 2021 will not be a repeat of 2008, experts say

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NASHVILLE, Tenn. (WKRN) — In this red-hot housing market, we are seeing the highest pace of sales growth since the height of the 2005 housing boom.

CoreLogic says within the last year, home prices in Nashville have risen a whopping 15 percent. The last time we saw annual price growth that high was, again, in 2005.

So how does our current price increase compare to the pre-Great Recession housing bubble?

“When real estate markets are surging like we’re seeing here in Nashville and nationwide, every buyer is going to be inquiring about our opinions on where we stand in the typical arch, and eb and flow in real estate,” said Jeff Checko, a realtor with Ashton Real Estate Group of RE/MAX Advantage.

Though some of the housing trends, headlines and statistics surrounding growth seem similar, experts say rest assured 2021 will not be a repeat of 2008, despite some predicting early in the pandemic that it would lead to a housing crash worse than the Great Recession.

“It’s a very different market today than it was in 2005,” said Frank Nothaft, Chief Economist with CoreLogic.

In the early 2000s, there were a lot of high-risk mortgage products including sub-prime mortgages, often given to people with low credit scores.

“We also had low dock loans, otherwise called ‘liar loans’ in the industry and those were high risk loans where people would lie about how much income and how much reserves they had in order to afford a mortgage,” Nothaft said.

In addition, back in the day, a large portion of demand was driven by what some call “artificial factors,” whereas today, many believe housing demand is being driven by healthy and sustainable trends.

“We have a system of checks and balances that has safe guarded real estate to a degree,” Checko said.

Now, of course, it’s a lot harder to obtain a mortgage. Everything is underwritten and fully documented. But lending isn’t the biggest difference between 2005 and 2021, inventory is.

In 2005, the housing market was overbuilt, pushing supply way beyond demand, leading prices to collapse. Today, it’s the exact opposite, where realtors can’t find homes for their buyers to buy. Demand is high, inventory is low and housing prices are skyrocketing.

“Today, we have an underbuilt housing market where the vacancy rate is low and declining so it’s a very different market both in terms of mortgage finance and housing market overall,” Nothaft said.

Moving forward, demand is expected to stay strong as the Millennial and Gen-Z generation age into homeownership. Once more inventory hits, experts say, the market will balance and not crash.

However, Checko says we’re not out of the woods just yet.

“We have a lot of loans currently in a forbearance status due to the federal guidelines, the CARES act, as it related to COVID,” Checko said. “You’ve got tens of billions of dollars that have to come home to roost, and it will be interesting to see how that affects us locally and nationally, and of course you have the threat of inflation and potential measures to curb tale that, that would also impact the real estate market.”

Yet, data suggests that more borrowers are leaving forbearance plans. The Mortgage Bankers Association recently reported that the total number of loans in forbearance fell by 11 percent as of the July 4 holiday.

Checko says for those living in Middle Tennessee, they’re even better off.

“I think people should feel comfortable about the wonderful business climate we have here in Tennessee and feel about as comfortable about our market, which is ranked in the top three by anyone’s metric as you could anywhere if you’re buying as an investor or homeowner.”

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