Investors Should Not Confuse The Current Housing Market With 2008

Those investors who lived through the great recession of 2008 are understandably concerned about the current state of the housing market in the U.S. While prices and inventory have shifted along with rising interest rates, the fear of replicating the housing disaster of 2008 is, for the time being, probably unfounded. 

The most obvious differentiators between the housing crisis of 2008 and today’s housing market are twofold. First, the recession, which coincided with the housing market crash, was fueled by bad loans. At the time, the George W. Bush administration joined forces with Fannie and Freddie Mac to launch an “everybody deserves home ownership” (sub-prime) mortgage campaign for people. Unfortunately, those people eventually showed they were incapable of paying back their loans. 

Banks were also at fault, scooping up these mortgages under the belief that they were sound because Fannie and Freddie backed them. They were not, and mass bankruptcies ensued. The federal government certainly learned from that experience, and new regulations are now in place, making mortgages much tougher to get in 2022.

The second factor not in play today is the number of adjustable rate mortgages (ARMs) owned in 2008. ARMs are loans with an interest rate that adjusts based on the fluctuation of market rates and are much less predictable and risky, especially in recessionary times like 2008. That year when the housing market crashed, ARMs represented a much higher percentage than they do now. The Washington Post reports that over 30% of loans were ARMs in 2008, but today, according to NBC, they only represent 8% of home loans. 

For more than 35 years, billionaire Grant Cardone has been investing in real estate and claims he has never lost money on a multifamily real estate investment. Since founding Cardone Capital in 2016, it has raised over $900 million across 21 funds from over 11,000 accredited and non-accredited investors. Cardone's real estate portfolio includes nearly 12,000 apartment units across 36 multifamily properties and over 235,000 square feet of commercial office space. He views the current fluctuating housing market, like in 2008, as an investment opportunity. 

"I believe we are entering the BEST real estate market opportunity since 2008. With the Fed raising interest rates, it has sidelined home buyers, which means prices are going to pull back. If you are an end-user looking to enter the housing market, now is a great time to buy a house 15%-20% cheaper than it would have been at the beginning of the year, " said Cardone.

Finding one to buy is a more significant issue. Although the supply of homes for sale was up 27% at the start of September, according to Realtor.com, it's not enough to offset the pandemic-inspired period of home shortages, as the current inventory is still 43% lower than in 2019. 

The Chief Economist at Redfin Corp., Daryl Fairweather, told Newsweek recently that during a recession, home prices fall between 2% and 4%, and if a crash happened now, the downturn would remain in that range. 

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