Is the Arizona housing market going to crash in 2022?

Many home buyers remember the housing bubble bursting in 2007. Many lived through that recession. Other would-be first-time home buyers grew up hearing about it. We’re also living in a time of divisive politics, record-breaking inflation, pandemics, and economic uncertainty. So, it’s understandable that many are afraid (or hope) that housing prices will fall like they did back then.

But it’s not likely. Below are a few reasons why;

BETTER LENDING PRACTICES

Yes, with rising interest rates, the red-hot housing market is beginning to cool off. But, the housing market is much healthier now than it was in 2007-2008. There is a huge difference between lending practices and loan profiles in this current market, and a decade ago. Average credit scores on current loans are much higher. NBC News reported that the average borrower credit score is 751. The Federal Reserve Bank of New York reported that the median score of new loan originations was 776 in the first quarter of this year. That reflects a considerably higher standard of lending than what was common in leading up to the great recession.

DEMAND STILL OUT PACES SUPPLY

While inventory is slowly ticking up, it still can’t keep up with demand. That’s why, despite rapidly rising interest rates, home prices remain historically high. Going into 07/08, the housing market was experience oversupply. Builders had over built, among other factors. As foreclosures increased, the market froze.
That’s hardly the case today, where demand is high and supply is short.

TAPPABLE EQUITY AND LEVERAGE

We’ve seen consistently climbing home prices throughout the pandemic. That means that’s Americas homeowners are sitting on record amounts of equity. And that’s tappable equity, which refers to the amount of liquidity/cash a borrower can pull out of their whom, and still leave 20% equity on paper. This number hit a new high of 11 trillion in 2022, mortgage data center Black Knight reported. Simultaneously, the amount of debt against the homes value has fallen, resulting in an average total mortgage debt below 50% of current home values in the US. Negative equity (a huge problem in 2008) is extremely rare in this housing market.

NO MORE HAZARDOUS LOANS

The number of ARM’s (Adjustable-rate mortgages) are at an all time low. Roughly 8% of all active US mortgages. Before the crash in 2007, that number was 36%. This is a real positive, especially as we watch interest rates rise. Why? As rates increase, the monthly mortgage payment for those with ARM’s increases as well. Homeowners facing higher monthly payments puts them at risk. The number of homeowners in this position in 2007 was high. It’s currently at an all-time low… making the potential risk and impact to the market much less significant.

LESS HOMEOWNERS IN DEFAULT

Despite the pandemic, Past-due mortgage payments are historically low: While there was a notable increase in mortgage delinquencies during the pandemic, the total number has remained low, at around 3%.

So, why are we seeing a cooling in the market? Housing affordability; record high prices, rising interest rates have simply made it tough to buy a home. That has eases demand as some buyers have been pushed out of the market. As supply slowly increase, we will continue to see a slow-down in appreciation, and we are already seeing a less competitive buying market. Waived appraisals and cash offers well over asking price aren’t as common, and average days on market are normalizing.