Mortgage Mania: Financial Crisis of 2008

Most people don't know what an extraordinary comeback the housing market has had since the financial crisis of 2008.

Seeds of the Financial Crisis of 2008 are Sown

All financial crises have one thing in common: they start out as an obsession. Look back at history and you’ll see glaring examples of this. Back during the Florida land boom of the 1920s, people were so hellbent on buying land in Florida's "sunny paradise", that they bought land through mail. They didn't even know if the land they had bought was a random patch of swamp.

The seeds of the financial crisis of 2008 were sown when bond rating agencies began lying about the quality of the mortgages they were selling. You may not know this, but when you buy a home and take on a mortgage, you have a mortgage servicer. This is the person or entity that collects your mortgage payments, so that they get back the principal they invested. What this means is that mortgages have a domino effect when it comes to investing. Investors rely on bond rating agencies to separate the good borrowers from the bad. Investors will choose to service someone’s mortgage based on how likely the borrower will be able to make payments on time.

Mortgage Lollapalooza

Frankly, what caused the crisis is that bond rating agencies and lenders began making credit too easy to access. They were giving bad mortgages AAA ratings—which are ratings only given to mortgages that were the cream of the crop. Easy credit lending encouraged crazy spending for people who couldn't actually afford the homes they were buying.

In all cases concerning mania, what creates financial bubbles is high demand and high availability of a product. Normally, things only have value if they’re a limited resource. That wasn’t the case for the housing market in 2008.

Instead, the issue at hand was that in order for things to seem to make sense, home values had to increase as demand remained high and people bought homes left and right. In fact, between 2001 and 2007, home values doubled.

This ended up causing mortgages to go upside down, where borrowers owed more money than their homes were worth.

How We’ve Bounced Back Since 2008

The best way to look at housing recovery is to look at homes as what they are—the basic unit of the economy. Homes both create and meet needs, and because of this, that also means that they create jobs. The people living inside of homes need cars, furniture, gas, electricity—you name it, they need it.

What I’m trying to say is that housing completions are a great indicator of how the economy is doing. In the years after the crash of ‘08—all the way up until 2015—housing completions were the lowest we’ve ever seen.

Now, I’m happy to say that we’ve regained considerable momentum, even if we are playing a game of catch-up. In fact, home building has picked up consistently since 2016. In June of 2021, the Census reported that 1,368,000 homes had been completed. There is no housing bubble on the horizon—because housing has never been more stable.

If the national infrastructure plan passes, that'll mean billions of dollars dedicated towards affordable housing. But in the meantime, the best way to find affordable homes to buy are to work together with a qualified home buying team. Verify your mortgage eligibility today and ask about off market listings by calling our office. Off market listings are just one of the ways that brokers are helping their clients navigate this competitive seller's market.