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Why This Real Estate Cycle is NOT a Repeat of 2008

Posted on September 6, 2022 | Read time: 4 minutes

Fueled by low interest rates, easy credit, and insufficient regulation, the Great Recession of 2008 has been considered one of the most significant economic downturns since the Great Depression. This sharp decline in economic activity has taken a long time to recover from, especially when it comes to the housing market. Now, with home prices up nearly 19% nationally since last year, people are wondering if another economic crisis is looming. While these concerns are understandable, there are many distinct differences between this downturn and the 2008 recession.

kayaking at naples reserve
Naples Reserve

A Market Surge Driven By Lifestyle Priorities

Unlike the last housing boom, one could argue that home price growth since the start of the pandemic is justifiable. The lifestyle change brought on by the pandemic caused many Americans to reassess their living arrangements, and the remote work revolution only increased the desire to move somewhere new. This jump in homebuying demand hit right as the existing supply declined for a variety of reasons. Homebuyers were cautious with how many homes they were bringing into the market, resulting in bidding wars that pushed prices upwards for the limited homes available. Of the contributing factors to rising prices, however, none have been more powerful than the decreased mortgage interest rates driving demand. Economic research has shown that the interest rate on a 30-year fixed mortgage from 2002 to housing’s peak in 2005 was at 6%, while the rate from April 2020 through today is just 3%.

Improvements to 2022’s Housing Market

While tensions between supply and demand have fueled the state of the 2022 housing market, the 2008 market was a completely different story. Cheap credit, lax lending standards, and insufficient mortgage regulations led to an overheated market that fueled the housing bubble. The times have changed, however, since that 2008 crash, and various regulations and safety measures have been put in place to prevent such an event from happening again. Mortgage credit availability is starkly tighter than in the mid-2000s, and the often-riskier adjustable-rate mortgages represent less than 5% of the total purchase and refinanced loans compared to over 35% at the peak of 2008.

A Positive Real Estate Trajectory

Overall, supply and demand will always drive the housing market, and affordability is critical for both new and existing homebuyers. That said, with new safety measures in place, and less risky investments, it is unlikely the housing market will crash the same way it did in 2008. Standing inventory that has been priced right continues to be absorbed quickly, creating a strong market for both buyers and sellers. While other economic and financial challenges could result in a drop or flattening of home prices, it’s unlikely that it will bottom out completely.

Using Data to Understand Market Trends and Evaluate Risk

Laurie Andrews on current real estate cycle
Laurie Andrews, President
Cotton & Company

The real estate marketing specialists at Cotton & Company are keenly aware of how quickly market trends can shift. The company’s data-driven methodology provides a detailed look at real-time consumer trends. “We’re monitoring the online activity for more than three dozen lifestyle communities,” says Laurie Andrews Cotton & Company’s President. Cotton & Company’s daily monitoring of website traffic, time spent researching on websites, and the number of direct inquiries generated are key indicators of the strength of the market. “In 2008, we experienced a dramatic drop in interest across the board. It was like a faucet that shut off overnight. In 2022, we continue to see interest climbing for new home communities. Florida in particular is benefiting from new lifestyle priorities and the State’s favorable tax climate. We’re remaining optimistic for strong sales in 2023.”

Cotton & Company is a full-service digital real estate marketing firm specializing in the luxury segment. The firm boasts a portfolio of more than 1,7000 communities, including luxury condominiums, country clubs, marina residences, resort residential, and master-planned communities. Visit CottonCo.com to learn more about their full scope of services that range from branding and website development to sales support, lead generation, and digital/social marketing.

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