One of the only predictions that you can obtain from a college or university economics professor in today’s world is, “Our current marketplace is cyclical“. Our federal government is borrowing money at a rate never before seen since 1945 at the end of World War II. The Covid pandemic caused supply chain shortages, the lack of inventory in all areas from food, construction materials, and now even baby formula. In 2021 and 2022 we were faced with unemployment at historic highs due to shutdowns in retail, wholesale, even white-collar professions that have historically been exempt from financial downturns. So, the question at hand is “Are we headed for another 2008?“. I think one of the only predictions economic experts share is that 2023 is not the same environment as 2008, 2009, or 2010.
In 2008, banks liberally extended cheap and easy credit to extremely underqualified borrowers. Anyone who was around at that most difficult time should remember “No-No” loans. No job verifications, no income to debt ratios, and no down payments. Just irresponsible subprime mortgages. One of the slang descriptions used by many mortgage brokers at that time was “If you could fog a mirror, you could get a loan.” As a result, too laxed mortgage requirements caused investors to be left holding trillions of dollars in worthless mortgages and mortgage-backed securities. It was years of the Fed changing its monetary policy and real-world economic projections that permitted us to put this recession behind us. So, the question should be, is our current economic time like 2008? I think the short answer would be “NO.”
In today’s market our housing fundamentals are healthy. Borrowers have deposited down payments that were directly applied to the outstanding loan amount. The borrower’s interest rate could be significantly lower than today’s rate (depending on when the loan was closed). A significant benefit most homeowners have received is property values have continued to rise at a considerable rate. The three items identified in this article will not prevent a correction in today’s market, but should prevent tumultuous crash. According to CNN, Moody’s and Goldman Sachs, they predict a creeping “slow cession” or even a soft landing that will smooth inflation but without stifling growth.
My personal plan to hedge against difficult economic times is to watch the Fed and see if they continue to increase Bank Interest Rates. Study 30-year fixed rate mortgage terms, and keep a close eye on the 10-year Bond Market. As an observer of our economic future, I clearly fall into this optimistic overview, “The market is and will always be, Cyclical“.
Respectfully,
Stacy Davis
Windermere Real Estate
Eagle Point & Upper Rogue Board Member