After five plus weeks of Corona shutdown, we are all feeling the impact of the pandemic in Northern Michigan both from an economic and emotional perspective. If nothing else, if we never see Frozen II again, it will be a miracle.
We have fielded many questions from people in our community about the state of the housing market and the similar pangs of unease reminiscent of 2008. While many of us faced hardships during the Great Recession, there are some core components of the current economic health crisis that set it apart from what we saw 12 short years ago.
Lenders Are More Reticent to Lend Compared to 2008 Standards
The Housing Credit Availability Index (HCAI) measures the percentage of owner-occupied home purchase loans that are likely to go unpaid more than 90 days past their due date. The lower the HCAI, the less lenders are willing to tolerate defaults and will, as a result, impose stricter lending standards for applicants. As you can see from the graph provided by Urban Institute, in 2008, lenders were much more willing to embrace risk and tolerate defaults, making it easier to get money. Borrowers could go so far as to purchase a house with no money down, erratic income and acquire as much as 125% of the home value with a “no-documentation” loan. Today, the HCAI index is significantly lower, making it harder to acquire a loan. There is still plenty of space for lenders to expand their risk, but for the time being, they are playing it safe.
There Is Still A Shortage Of Homes For Sale In Northern Michigan
For buyers pre-COVID, finding a home and being able to put in an offer was like jumping after fish with your bare hands to try and catch dinner…HARD. Limited inventory coupled with lots of demand for waterfront, downtown living or investment properties made for slim pickings and well connected, saavy realtors winning the day. The same is true today as it was in February 2020 – homes in our area are in short supply, but plenty of people continue to express interest in Traverse City. Virtual showings have been a novel new addition to our buyer experience, but sharing drone video, architectural photography and even Zillow video walkthroughs of properties isn’t. Remote buyers can and will be around for the long term, especially as people escalate their retirement plans or that second home purchase in an effort to get out of major metropolitan areas post COVID-19.
Consumers Are Treating Their Home Equity With Much More Caution Today
During the bubble, many home owners leveraged lenders’ flexibility to gain access to spending cash for their luxury lifestyle, through cash out refinances to afford new cars, clothes, vacations and more. When the crash came, not only did they owe that money back, their homes went into foreclosure or short sale.
Today, most Americans have at least 50% equity in their homes, and 37% of homeowners in the US own their homes free and clear making it an asset that is much harder to leave. In addition, many of the lending products that got us into the 2008 mess aren’t available anymore, and the practices that started the decline are severely constrained.
The Housing Market is Much Stronger Today Than In 2008
Although the COVID-19 experience has been one rife with emotional ups and downs, this health crisis is fundamentally different from the 2008 Housing Crisis. The Traverse City real estate market is much stronger today than during the bubble of the Great Recession. Indeed, real estate in our area could be what helps pull us out of the downturn and back on course for economic growth in our region.
Brick & Corbett is Here to Help
If you want to talk about what options are available to you in the northern Michigan real estate market, we would love to talk. Click below, and a member of our team will contact you as soon as possible to share with you how we can help make the next chapter of your home ownership journey happen.