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  • Writer's pictureJared Jones

Will Loose Lending Crash the Market Like 2007-08?

Updated: Apr 9, 2021




That's what I would like to compare. And just to kind of like, kind of balance things out here is just to show you some raw data and we can pull this up on the screen. Isn't from 1985 to 2000, the percent of the median income needed to purchase a median priced home, right? So that the average buyer making the average income on an average home, the price of the mortgage of the home was 21.2% during the bubble, it was 25.4% right now in today's market. We're at 14.9%. People are very comfortable with mortgage payments. Interest rates are low homes are still on the incline because we're in recovery from the crash. So we're making up for a lost time. Right now. The fact of the matter is, is we're actually qualifying people for homes that they're very, very comfortable paying right now.

And, I don't see any trouble here when we're comparing this to the market or even the actual historical norm from all data collected. We're at 49.9% of the median income goes towards somebody's mortgage. That's pretty comfortable to me. If you think about it, that's one in seven that's. One-seventh of is that the median income going towards, uh, towards somebody's mortgage, I mean, people are, and people are wanting to qualify for more. I mean, bigger homes are more popular now. You know, people are not just living at home now, now they're working from home, you know, they're starting their own businesses from home. Cause they're seeing that a lot of businesses failed, but now it record-breaking amount of businesses have opened because of that. This is an incredible comeback that we're seeing people are using their homes in different ways. And it's just incredible to see how, how America's bouncing back.

So listen to this. So, I was, I was actually doing some research on the topic of cash-out refinances, and actually, it's not easy to find a lot of data on exactly how much of this is turning over recently. But, but there is a guy named Nikolai [inaudible] who is with he's a Wharton finance professor. So Wharton business school. And I believe he's out of, the University of Pennsylvania. And his co-author wrote a paper, they did a ton of research on refinances, going into housing crashes, say recessions. And, and what he said, look, let me read the article from, from Wharton UPenn. He said it starts off by talking about how times passed people started using their home as an ATM. He said, that's what happened a decade ago when the housing market collapsed new research from the same guy, Wharton finance professor Nikolai Rubinoff shows that the pattern wasn't particular to that one recession in 2008, he says, looking back 30 years, Rusyn off as coauthors found a cyclical pattern of refinancing before each recessionary period.

Now, if that is true, right? And you stare at this graph, okay, let's all stare at the graph, right? Whereas the last recessionary pattern. So you have, I mean, you had a blip at the, of the bust here going into 2000, but then going into 2007, 2008, it just never stopped. And I mean, as you can see in the early two-thousands, you had a trend according to Freddie Mac of cash-out refinances, just taking off early. Now it took, you know, from 2002 to two, it took six years for people, piggy banking, the house, keep cash out, you know, ATM sh taking tons of equity out before anything happened. Okay. So, you got to look at this, there's no question that in the last year, the climb has gotten much steeper. The volume of cash coming out has gotten much higher than it has at any point in the past 10 years since that time.

Okay. We're at record levels, post-great recession. Okay. That's true. But at the same time, if you look at this, there were steep climbs, then there were some more descents and then there was more money. Okay. Yeah. So with all that being said, the recession may not be around the corner. Like it may be, you know, we, we might be at the start of five or six years. It takes to actually formulate a bubble if it mimics last time, because clearly, you know, in the early two-thousands, the market was, you know, felt the same super-hot lot of action going on a lot of, uh, appreciating a lot of, you know, the same experiment we're seeing in the marketplace right now, similarities. However, it did not disrupt overnight. Did not, did not fall after.

Yeah, yeah. There was a lot of fraud and, and, and I mean, I think the last crash had everything to do with real estate. So I mean, it's, it's tough to, to kind of make a one-to-one draw because people were just, they had adjustable-rate mortgages, they were qualifying for two, three, four mortgages. You could write a mortgage up for somebody's dog. You know, it was nuts. It was the wild, wild West of mortgage lending. And so, I mean, it's tough to say because the market was going so crazy up. I mean, the market was not even the market appreciation was not as high was, was higher than when we're seeing now. So if we look at the numbers in 2002, the annual home appreciation of prices went up 8.5%, 2003, it was 8.7, 2004. It was 12.5, 2005. The market went up 11.4%. These are insane numbers right now we're seeing, in 2017 it went up 6.42, then 18 4.8, 2019 4.7 last year, it was a big market.

I went up 9.2%. Right? So, I mean, we're not seeing the level of appreciation that we did, uh, back back in during the bubble. And, and also like, like we were talking about mortgage lending standards are much higher. I can pull up this graph too. It shows the actual it's from the Urban Institute. It shows the amount of risk that the lender takes that a product actually has, uh, uh, in terms of it to the buyer in terms of lending standards, what is, is it below or above reasonable lending standards? Is it very hard to get a mortgage or is it very easy? And it shows that that number is actually going down right now. It's actually getting harder to qualify for a mortgage just based on lending standards, because I mean, you know, it just makes sense. You know, the home prices are going up and the bank's going to want to protect their, their investment. They don't, they don't want a bubble crash like the last time if that makes sense. So it's harder to get a mortgage. You know, I think we're in a much stronger market than we were then. And, well, we'll pull these, uh, these graphs up. So you folks have, uh, access to them as well.

You don't need to worry because the people that run, everything is way smarter than we give them credit for. They wouldn't make a mistake.

No, no guys, we can trust the government. The government's good.


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