One reason why the Great Recession was so acute is that, despite the full availability of mortgage loans at the time, the economy as a whole and employment, in particular, were not all that strong. The unemployment rate, which measures the percentage of people who want to be employed, was 5% in December 2007. That might not sound all that high, but it means that one in every 20 people who wanted a job couldn’t get one. By October 2009, the unemployment rate was 10%.
Today, as home prices have risen back up to pre-crisis levels, the question on a lot of minds is, “What’s changed since 2008?” Economic recessions happen regularly, and it’s natural to wonder when the next one will rear its head and what it will mean for housing when it does. The changes that have happened since the Great Recession have reshaped the housing industry
Here are 11 ways the housing industry has changed in the past decade, and what it means for homeowners, buyers, sellers, and renters.
The economy — and employment — is stronger.
One reason why the Great Recession was so acute is that despite the full availability of mortgage loans at the time, the economy as a whole and employment, in particular, were not all that strong. The unemployment rate was 5% in December 2007. That might not sound all that high, but it means that one in every 20 people who wanted a job couldn’t get one. By October 2009, the unemployment rate was 10%.
Today, the unemployment rate is hovering around 4.0% or just below. That might not seem like a huge difference from 5%, but it represents hundreds of thousands of more actual jobs. When unemployment goes down, wages go up because employers have to compete harder for qualified workers. Wages haven’t historically grown as quickly as home prices, which has made it more challenging to buy a home. And wages still have a ways to go to catch up with home prices, but the fact that we’re currently seeing an upward trend in both employment and wage growth is a promising sign for the economy as a whole.
The economy is never invulnerable to a recession, but the more jobs (and better-paid) jobs that are available to workers, the better shape everyone is in — especially consumers, whose behavior can often dictate whether an economy soars or crashes. When consumers have jobs, they’re more willing to spend money.
Mortgage rates are lower now (but they’re moving back up)
After a decade of mortgage rates in the 3% and 4% ranges, it’s no wonder that rates higher than 5.0% feel unnatural, but the annual average 30-year fixed-rate mortgage rate in 2008 was 6.03%. A higher mortgage rate means borrowers will spend more money for the same loan amount over time. Hence, a higher mortgage rate usually means that buyers have less money to spend on the sales price of the home, so it’s always a good idea to shop around when looking at home loans.
Mortgage rates have stayed in the 4% range throughout 2018, so they’re still relatively close to historic lows. Again, they’ve been steadily creeping up all year, and many economists predict that we aren’t too far from rates in the 3.5% range and that we will be continuing to see prices around stay there moving into 2020.
Institutional rental investors are more widespread.
When the wave of foreclosures hit the country, a lot of single-family homes were left vacant. It was a prime opportunity for institutional rental investors to buy up rental properties at reasonable prices, which many of those investors proceeded to do at fast paces. After fixing the homes up, these investors were able to rent them out for a profit, and as the housing market recovered and rental prices began to rise, this investment became even more lucrative.
This prevalence of institutional investors and their more widespread ownership of entry-level housing stock has also contributed to other issues, like the fact that there are too few houses on the market to meet demand.
There’s much (much!) less inventory.
One reason why home prices have grown across the country is that there are not enough homes for sale to meet buyer demand. Some developers were not able to weather the recession at all, while others who did survive pivoted to building luxury, high-end homes, and apartments to be sure they’d make a profit on their investment.
The lack of housing inventory has also shortened the amount of time that many homes are on the market, leading to some environments where homes in desirable locations are sold very quickly and even sparking bidding wars in some cases.
… But it’s easier than ever to find a home to buy
Although there are too few homes for sale, if you’re a buyer, it’s never been easier to find a home for sale. There’s no need to find an agent so you can look through listings; instead, you can pull up the browser on your phone — or a home search app — and look at homes for sale on Zillow, Trulia, Redfin, and many other platforms. In this age of the internet, many listing agents invest in separate web pages for each listing, so you can also find all the same details by just punching in an interesting address on Google.
That said, if you don’t make it to the open house (if there even is an open house), then your opportunity to walk through the place to see it for yourself will still require talking to an agent.
Regulations make it more challenging to secure a mortgage.
After the recession, several pieces of legislation tightened up loan standards and made it more difficult to issue loans to buyers without substantial proof of income, assets, and debts. Anyone who’s bought a home, or applied for a mortgage in the past decade, will understand. As the economy got back on its feet and lenders began dealing with these new standards, they became much more cautious about mortgage loans. Great for preventing another housing crash, but it hasn’t felt great for buyers whose credit or lack of a down payment has prevented them from securing a mortgage loan with good terms.
Real estate appraisers are now required to be independent.
Another repercussion of the recession and the new regulations that followed is a change in how real estate appraisers work. Previously, appraisers would be hired directly by a mortgage broker, real estate agent, or somebody else with a vested interest in seeing the house appraised at a specific value. Maybe the mortgage broker or agent’s commission was on the line, and those deal participants would sometimes have an opportunity to “nudge” the appraiser to come up with something favorable to them.
One of the new regulations states that appraisers must be independent and that no other participants in the real estate sale, from either side, should have any influence over the appraiser and the appraiser’s decision.