Monthly principal and interest payments on mortgages are skyrocketing, new and existing home sales are falling, and affordability has dropped to 2005 levels, but according to Bloomberg, that doesn’t mean that today’s housing slump is reflective of the 2008 bust. Not only is financing far less risky than it was leading up to the subprime mortgage collapse, but this time around, more homeowners are also equity rich.
In almost half of all mortgaged properties in the second quarter, owners had at least 50% in home equity, and that Q2 gain followed nine straight quarterly increases. Without a market for subprime mortgages or related bonds and with more homeowners backed by equity wealth, a housing downturn is more likely to rebalance an off-kilter market, not crash it.
The first is that housing is financed much differently than in the years leading up to the subprime mortgage collapse and resultant financial crisis. You had no money down mortgages, “liar” loans, NINJA loans, interest only mortgages, negative amortization mortgages and numerous financial innovations on top of those – all of which were facilitated by poor underwriting standards.
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