The biggest question... will the real estate market crash?

I remember several years ago during a panel discussion between loan officers and real estate agents, the question got asked about whether we would ever see conditions like the early 2000s again. Many people chimed in with "no way," "it's unlikely" and simply "no, too many things have changed for that to ever happen"... but there was one opposite answer "we all have pretty short memories, so probably."

Differing options on whether or not this is possible is at the forefront of people's minds. Right now of the many online searches about sports, solar eclipse's and dry shampoo are also high traffic searches about consumer confidence, inflation and the housing market. Many are wondering if this is the start of another "crash" and how to make the best choice in their goal of buying or selling. To go forward with this thought, let's go back first.

Commonly referred to as the housing market crash, subprime mortgage crisis that is fresh in our minds was the result of the perfect storm. Endless resources exist to understand this further, but keeping it simple, it was a multi-factor situation. Some of the factors were things as basic as supply and demand. Demand in the first few years of the 21st century was high. Homebuyers could buy a home with absolutely no money down in most cases. I remember my sister buying her first home from a builder in Bakersfield without a penny out of pocket and tons of upgrades. My husband and I bought our first home in Golden Hills in 1999 for nothing, cashed out a 125% equity loan in 2001 to start a new business and just as easily upgraded our home in 2004. With the ability to buy being so easy, many people were wanting to purchase, as a result... builders got to building, as much and as fast as they could.

Regulations were much easier. In fact, 2004-2007 my husband and I built many homes in Tehachapi and nearby. Building was easy, buying was easy. Buying and reselling at a higher appraised value immediately was easy. Many financial institutions loosened their lending requirements to allow for increased homeownership being sought after by federal regulations and presidential agenda. One big change was not accounted for during this time was a sudden decrease in demand.

The average age of a first-time homebuyer is 33 years old. In 2003, it was 33 years after the U.S. Supreme Court ruled in favor of Roe vs. Wade and conferred the right to have an abortion. Immediately birth rates plummeted and 33 years later we have decrease in home buyer demand. Basic economics of supply and demand is critical in consumer purchasing and evident in our housing market. Why does understanding this matter? To answer the question of one big thing that is different between that market and today's market. We see some similarities, housing values climbing, buyer demand at an all-time high, limited supply. Add high inflation and climbing rates, seems like another perfect storm.

However, here are a few details that are very different and beneficial. Homeowners across the country have more equity in their homes than ever before. Making it easier to "cash out" in times of distress or need. Equity was minimal to none in the season of the crash. The first-time home buyer population has a steady increase in numbers over the next three years and is significantly higher than the amount of housing starts for single family homes. Although there are still many loan options available, guidelines and regulations around qualifying are still at the strictest levels they have ever been. Qualifying is not easy, and if it's easy, likely there is a large down payment required which leads to immediate equity and safety for the homeowner and investor. Add to that the higher regulations on appraisals and overall, you have a lot less risk in the market. Less risk-taking leads to a lower likelihood of a crash.

Alysha Boles is a Mortgage Loan Advisor and Debt Strategist that specializes in both the planning, pre-approval and loan process of mortgage lending. Licensed in California and Texas and the ability to connect you with a licensed professional in all 50 states. She can be reached at (661) 858-7214, or inquire online at http://www.advisoralysha.com.