Question: Libby, is the real estate market going to crash? Answered by Libby Guthrie
Hi, I’m Libby Guthrie with Keller Williams Realty in Northern California, and I have a lot of clients asking me about whether or not the real estate market is going to crash like it did in 2008. So I’d like to compare a little bit of 2008 to now 2020 regarding what was going on in the market at that time compared to what’s going on in the market at this time.
So back in 2008 as most of you all are aware of the property value started going down. And what had happened was when people obtained their mortgage loan. They obtained what we call a hundred percent financing on a lot of those loans. Meaning they had a first mortgage and they had a second mortgage, and they basically didn’t put any money down.
So they were banking on the fact that that the property values would still go up. And which we all know they did not. So when they got into a financial situation, as a homeowner, they could no longer make their house payments. They were what we call underwater, meaning that they owed more than the property is worth.
So their options at that time were to; number one, either walk away, number two, try to work something out with their mortgage company such as a loan modification, or do what we call a short sale. Sell the home for less than what it is actually owed on the property.
So we jump ahead to now 2020 and what’s a little bit different, yes, we are facing the COVID virus and some unemployment because of that. However, more people have equity in their homes now than they did in 2008 so if they do need to sell they’re not going to be underwater, and they can walk away with some kind of equity.
Or they could, if they’re still employed, they could still do a refinance and take some cash out of the property possibly and use that cash for kind of a kitty for a, you know, rainy days if they run into financial difficulties.
So it’s a little bit different. Will we see some foreclosures and short sales down the road here? Probably will because there will be some fallout of some people that just bought possibly a couple of years ago or just a year ago, that don’t have as much equity as somebody that bought you know, maybe five or six years ago.
So we may see some foreclosures coming down, but it’s going to probably be in California about a year to a year and a half before we actually see that impact.
So stay tuned. If you have any questions about you’re thinking of buying or selling, please feel free to reach out to me.
My phone number is (925) 628-2436 thanks.
The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.