Looking for a little clarity on this week’s news? Windermere Chief Economist Matthew Gardner looks at the data to determine whether we could see a repeat of the housing market crash.

There’s an overwhelming amount of data and headlines circulating. This column is my attempt to make sense of it all for you, the real estate professional, from an overall economic standpoint.

Over the past few weeks, people have been asking about whether the housing market is about to fall apart and wondering whether another meltdown, similar to the housing crash of 2008, is possible. Let’s dive into the numbers to see if we can find any similarities.

A look at the numbers

Equity

Looking at data from Black Knight Financial, a firm with excellent information on the mortgage market, we can make a qualified comparison between the housing market today (based on data from February this year) and back in 2007, just before the market crashed.

Back in 2007, 14.5 percent of homeowners had less than 10 percent equity in their homes. That’s a massive number that suggests that if an economic contraction occurred and put downward pressure on home values, many homeowners could easily be wiped out and end up “underwater,” meaning that their mortgage debt is higher than the home value.

Today that number is just 6.6 percent. Although seemingly significant, there will always be some share of the market with equity levels below 10 percent because of buyers using Ginnie Mae or other low down payment programs.

Numbers from Attom Data Solutions show that more than one quarter (26.7 percent) of homeowners are “equity rich,” meaning that they have more than 50 percent equity in their homes. We don’t have data to compare to 2007, but that is a substantial cushion for times like these.

How much cushion? According to the Federal Reserve, at the end of last year, homeowners were sitting on over $18.7 trillion of equity.

Credit scores

We have significantly better credit now than we did back in 2007. Data from Ellie Mae shows that the average FICO score for a conventional mortgage that closed in February was at 755.

Income

Home prices have escalated at a far greater pace than incomes, but we have significantly lower mortgage rates today than in 2007.

This is very important. For example, if a couple owns their home and one of them loses their job or is temporarily furloughed, of course this is a terrible situation, but a lower share of income is needed to pay the mortgage, which could allow the owners to continue making mortgage payments on just one income and savings until the other returns to work.

Tune in to the full video above for more data examples.

What does it all mean?

Clearly, we are in a very different place now than we were before the housing bubble burst.

Coming into 2020, homeowners were in very good shape. Elevated credit requirements have led the U.S. delinquency rate to fall to its lowest point on record. Foreclosure starts fell in March to the lowest level on record.

Are we looking at a repeat of 2007? I just don’t see it.

There will certainly be negative impacts on the housing market from COVID-19, but I anticipate that total existing home sales will drop this year by somewhere between 10-15 percent. It’s hard to be precise because much depends on when shelter-in-place orders end across the country.

Additionally, we should expect to see U.S. home prices pull back, but the drop in sale value will be short lived.

Again, if I make some assumptions regarding when the country will reopen, I expect to see quarter-over-quarter median home prices drop marginally in the third and fourth quarters; however sale prices in 2020 should still be around 2.5 percent higher than what we saw in 2019.

Matthew Gardner is the chief economist for Windermere Real Estate, the second largest regional real estate company in the nation.

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