Here we go again (or maybe not)

Here we go againIf you have read the news lately, you might have seen reports of a great recession just around the corner that will rival the housing crisis of 2008.

While it is true that we are overdue for a downturn based on our historic recession/boom cycles, I do not expect it to be anything like the housing crisis experienced in 2008.

In 2005, I was a student of the market.  I started selling foreclosures in 2005 because of the market conditions and the way loans were being sold.  I saw the opportunity long before the crisis evolved. 

The good news is that I do not see the same conditions today that I recognized in 2005. 

First, sub-prime lending is nowhere near the levels we experienced in the run up to the housing crisis.  This is a very small portion of the lending market today.  It is 100% more difficult to get a loan today than it was 10 years ago.  Most people forget that it was the crash of sub-prime loans that fueled the crisis and not the prime mortgage market.  Sub-Prime simply means that the buyers are unable to qualify for a mortgage at a traditional bank.

Second, getting a stated income loan is nearly impossible to do today.  Stated income loans are loans where you do not have to prove your income.  You simply sign a piece of paper that states your level of income and the banks accepts it as the truth.  Many of the fraudulent loans underwritten before the crisis were sub-prime loans with stated income, a double whammy.

Last, we do not have a huge inventory of new construction and resale homes.  The crisis in 2008 hit at the worst time for many builders.  Builders had tons of homes in the pipeline in areas where the demand was not strong.  When the market crashed, the banks were left holding the bag for these developments in process.  It took some time for the demand to outpace the inventory and that kept prices low for some time. 

Don’t get me wrong, I expect that we will have some kind of recession in the near future.  I do not expect housing will be the cause or that we will experience it in the same way as 2008.  Nashville has a strong future and will bounce back quickly from any national crisis.  This is what we have always done.

My biggest concern is the ever growing national debt, but that is a topic for another day.

If you are concerned about the future of the market, let’s talk about it today.

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