The late 1990s saw a growth in the stock market. People were keen on investing in stocks, shares, and other financial instruments. But, with the 2000s, came a new trend – housing.
The recession of the 1900s had made loans cheaper and easier to procure, making the purchase of real estate an easy affair. Soon, the obsession to own a house grew and the demand for real estate escalated. To enable the economy to grow, banks and financial institutions started promoting investing in housing, touting it to be the safest and most secure investment option available to investors.
By 2007, the amount of subprime loans taken out on housing and real estate was at an all-time high at $1.3 trillion. Everything was perfect and the housing industry was deemed to be the US’s one-way ticket out of the recession that had stripped the economy to its bones.
The 2008 housing bubble crash
The real problem started when overambitious investors and home buyers started defaulting on their subprime loans. The extent of nation-wide default was so high that financial institutions were forced to freeze all credit markets. This coupled with the rising prices of real estate and increasing interest rates for other types of financing led to the development of cracks in the housing bubble.
After this, Lehman Brothers filed for bankruptcy, setting off a chain reaction. Losses and defaults were at an all-time high, necessitating a $700 billion bailout. The Dow started losing points, ending at a dismal 8451 and losing a whopping $8.4 trillion.
The aftermath of the bubble burst and its impact on pricing
The housing market, still in a shock, saw a huge decrease in home sales. The stock market experienced a downturn. Valuations of mortgaged property dropped to all-time lows, leading to a greater number of foreclosures. Over 406 investors and homeowners were arrested for mortgage fraud.
Over 3 million foreclosures were filed, with banks and financial institutions trying to recover defaulted loans. The economy struggled heavily to get back up. The housing prices and home sales remained sluggish.
The number of foreclosures saw a significant reduction, with a 26% decrease compared to 2012. Finally, the housing market saw a price appreciation, with median house pricing increasing to 12.5%. Certain key cites were predicted to have a price appreciation of 40% YOY from Q3 2012 to Q3 2013.
The rate of foreclosure fell to an all-time low at 14% and prices steadily rose over the years. According to S&P/Case-Shiller, and Standard and Poor data, seasonally-adjusted national home price index saw a rise of:
- 52% in 2014, over the 10.74% in 2013
- 27% in 2015 over the 4.52% in 2014
- 83% in 2016 over the 5.27% in 2015
The data showed significant improvements in house pricing. A steady increase in home sales was also observed. The major metropolitan areas saw a steady home price rise over the years, while real estate prices in the mountains saw a sudden increase.
Research by NAR showed that the increased job creation led to the growth in demand for new single-family homes with 561,000 units being sold by year-end 2016. Existing homes also witnessed an increase in sale up to 5.45 million units.
Demand for new housing rose to 6.2% at 1,288,000 units, with 8.7% of these (1,114,000 units) reaching completion. The NAR estimates a 4% increase in home prices by year-end 2017. Sales are forecasted to grow by 2%, reaching $5.46 million by the year-end.
The IMF estimates that the US economy will grow by 2.2% ending 2017 and 2.1% mid-2018. This translates to fewer foreclosures and mortgage fraud. Home sales are also estimated to grow a further 4% of 2017’s 2% and reach a whopping $5.68 million.
Experts confirm that today’s millennial buyer has a good credit score, certainly above 700, meaning loan default is less likely. That, coupled with a strengthening economy and stringent lending rules, is keeping pre-bubble burst levels at bay. Looking at this data, it’s safe to say that the US housing market is back on its way to the top.