TL;DR - The 2007 housing market was overly expensive and crashed because of loose regulations. The 2022 housing market is strong because of fair pricing for an overwhelming demand of a lacking supply.

With home prices higher than ever, there’s been talk of the housing market crashing.

And while there are some similarities to the 2007 housing market, 2022’s housing market is in a much stronger position.

In fact, the only reason people are considering this market a “bubble” is because demand is higher than supply.

Instead of thinking about this current market crashing, we should really be discussing how long it’ll continue.

Because trust us, there won’t be a market crash anytime soon.

The 2007 Housing Market Crash

So to start off, what similarities does the 2007 housing market have with the current market?

Well, home prices are extremely high. Record high, even. And because of that, some people can’t afford to buy a home right now.

But that’s pretty much where the comparisons end.

In 2007, home prices were through the roof — but people were still buying them. Homebuyers couldn’t afford the mortgages they received but were approved nonetheless.

How could this be?

The lending practices of 2007 were so loose that almost anyone could get approved to own a home. Lending was borderline predatory during this time.

Instead of 30-year fixed mortgages, lenders would push homebuyers to get an adjustable-rate mortgage. As we’ve discussed before, these types of mortgages are beneficial early on but can quickly become unmanageable.

That’s exactly what happened to many homebuyers around 2007. They’d get an adjustable-rate mortgage that would balloon in payment amount over time. This often led to homeowners not being able to afford their mortgages anymore.

To make it even worse, homes were being severely overvalued in 2007. We can attribute this to the lax speculation of investors and overall loose regulations.

Not only were homebuyers being approved for mortgages that they couldn’t handle, but the actual home prices were inflated to begin with!

No wonder the 2007 housing market crashed.

Today’s Housing Market

The housing market of 2022 is robust — in a good way.

We’ve learned from the housing market crash of 2007. Lending practices are now much more regulated and by the book. The values of homes are fairly appraised by professionals.

Home prices are high, sure. But they’re simply valued to the demand of the market.

The problem is that housing supply isn’t meeting the current demand.

This issue has been long-coming. With millennials at-or-nearing homebuying age, the demand for permanent housing is increasing. People want to stop paying rent and live in their forever home.

To further add to the problem, Generation Z is getting older. Unless the number of available houses meets the demand being generated, home prices will remain high.

And it’s uncertain whether or not supply can actually keep up with demand.

Building costs have increased significantly since Covid-19. Where lumber used to cost $350 per thousand board feet in January of 2020, it now costs $1,300. That’s almost a 300% increase!

The result? Homes are taking longer to be built. In fact, some projects have come to a complete standstill. On top of that, builders are having a hard time finding skilled workers.

These issues can and will be sorted over time. Until then, we’ll have to live with reality.

But, on the bright side!

Many homebuyers today want to live in the property they buy. In 2007, real estate investing teams were the main buyers of the market. It’s a lot easier to default on a loan when you have to pay a lot of them.

In addition, 30-year fixed-rate mortgages are more popular than ever. This eliminates a lot of risk for both the lender and lendees. It’s highly unlikely that people will be defaulting on their loans like what happened in 2007. No more mass approval of adjustable-rate mortgages.

The 2007 housing market was overly expensive because of loose regulations. The 2022 housing market is strong because of fair pricing for an overwhelming demand of a lacking supply.

The Future of the Market

The housing market isn’t going to crash in 2022 because this isn’t a bubble. Experts and trends are actually predicting that this robust market will continue for the next year or two.

What does this mean?

Until the supply of houses reaches the demand that homebuyers are creating, the housing market will stay strong.

We have to accept that, for the foreseeable future, this is how the housing market will operate.

If you’re a real estate investor, this is good news. The housing market is as strong as it can be. Any property that you invest in is more valuable than ever. So if you have the means for a good down payment, then you should capitalize on this opportunity and invest.

Happy hunting!

How We Can Help You

Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!

At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.

Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.