If this true then we see the same in 2017!
I was at ground zero during the crash working in real estate. While there were many things that contributed to the market downturn, two problems were the main cause, and neither has been fixed. First no money down loans. Despite what the government and pundits tell you they never went away. For example, an FHA requires only 3.5% down, but the dirty little secret is that buyers can receive up to 6% in seller concessions, and add to that another 4.5% from down payment assistance programs.
The second is non-recourse loans required by many states including here in Arizona. When you combine homeowners with no equity and a loan that they can walk away from without a possibility of being sued by the lender, it is a recipe for disaster. What began as a small downturn in the housing market became a crisis because homeowners with no equity and nothing to lose began walking away from their mortgages, further driving down the market. Many didn't even try to short sale because it was of little benefit to them, and this resulted in entire neighborhoods being nearly vacant. These homes then became the targets of thieves and vandals lowering values to a fraction of their original worth.
If homeowners have substantial equity in their homes they are not likely to default in a small downturn, at least not until the market falls below their equity. Even then, if homeowners know they will face a lawsuit by their lender this will deter a foreclosure, and if needed mortgagers will sell off everything to make the payments. During the crash, it was so frustrating to watch people let their current home go back to the bank, while they moved all of their cars, boats, motorcycles, and giant TV's to a new cheaper home. Their only punishment was damaged credit, but now enough time has passed that their credit is restored and they are ready to start the process all over again. It's not so much that history repeats itself, but people never learn.
@Sai T., flippers didn't cause the crash. The insatiable hunger for mortgage-backed securities created a need for lower and lower qualified borrowers, which ran up prices. Flipper took advantage of the market realities and certainly contributed to price inflation.
I agree with you and first time I read flippers caused 2007 housing crashed
I was at ground zero during the crash working in real estate. While there were many things that contributed to the market downturn, two problems were the main cause, and neither has been fixed. First no money down loans. Despite what the government and pundits tell you they never went away. For example, an FHA requires only 3.5% down, but the dirty little secret is that buyers can receive up to 6% in seller concessions, and add to that another 4.5% from down payment assistance programs.
The second is non-recourse loans required by many states including here in Arizona. When you combine homeowners with no equity and a loan that they can walk away from without a possibility of being sued by the lender, it is a recipe for disaster. What began as a small downturn in the housing market became a crisis because homeowners with no equity and nothing to lose began walking away from their mortgages, further driving down the market. Many didn't even try to short sale because it was of little benefit to them, and this resulted in entire neighborhoods being nearly vacant. These homes then became the targets of thieves and vandals lowering values to a fraction of their original worth.
If homeowners have substantial equity in their homes they are not likely to default in a small downturn, at least not until the market falls below their equity. Even then, if homeowners know they will face a lawsuit by their lender this will deter a foreclosure, and if needed mortgagers will sell off everything to make the payments. During the crash, it was so frustrating to watch people let their current home go back to the bank, while they moved all of their cars, boats, motorcycles, and giant TV's to a new cheaper home. Their only punishment was damaged credit, but now enough time has passed that their credit is restored and they are ready to start the process all over again. It's not so much that history repeats itself, but people never learn.
@Sai T. the article uses the term "flippers" but they are referring to speculators. There were people buying 2-3 extra houses expecting to turn around and sell them for a profit without any rehab. House flipping generally involves rehab, whereas speculating is just straight buy and resell.
What is different now is the down payment requirements for buying second, third, fourth homes. Prior to the crash you could get 100% loans or interest only loans and the requirements for income were lower. Today you have to have a down payment, so there is a barrier to entry which weeds out many of the reckless investors that were seeking easy money.
The crash was caused by supply greatly exceeding demand. There were way too many homes being built or purchased on speculation. There were not enough people to buy the homes, so prices dropped. People ended up defaulting because they couldn't sell a house for less than they paid for it. Even if every home could be sold, there were not enough buyers. It was years into the crash before banks started allowing short sales. My friend was in real estate and they had buyers for homes, but the banks would't sell them for a loss, so the houses sat. The pipes froze and the houses got trashed, while the banks sat there demanding loan value, which was over market price.
We are hardly in the same situation today, but lending standards are loosening up. People who lost homes in 2006-2012 are being given a second chance today. There will be another down cycle, but it is not happening in 2017. Inventories are near record low in many markets and job creation is strong. Good signs that this market has more room to move up.