Remember the housing crash of 2008? Here’s what it can teach us.

If you think back to the economy and the real estate market in 2008 (assuming you were old enough for it to have an impact on you), there’s probably one big thing that stands out in your memory: there was a massive housing crisis. In fact, it turned out that 2008 hosted one of the biggest housing crashes in quite some time, marking the beginning of a recession and the start of much more stringent rules around mortgage loans. 

So, what happened? 

Essentially, lending standards that were less than up-to-par, and credit that was easily attainable led to the ability to easily purchase a home, and often, for much more than should have realistically been loaned. The rate of homes “flying off the shelf” ended up leading to a major housing bubble that, when it burst, resulted in a mega surplus of subprime mortgages help by banks. And subsequently, foreclosures, delinquencies, and some major devaluation on many houses and properties. 

What caused it?
Well, a few big things led up to the crisis. For one, predatory mortgage lending (AKA loaning money with detrimental terms) was running rampant before the crash. Adjustable rate mortgages, for example, ended up being responsible for higher monthly payments, that led to many people not being able to afford their mortgage payments. 

In that same vein, a lack of real regulation definitely played a role in the crash. In short, regulations changed allowing banks to invest customers’ money in derivatives. These were created from subprime mortgages and, when interest rates rose, many were left unable to pay their mortgages. A little confusing, we know. But suffice it to say that lackadaisical rules led to many consumers getting involved in loans that were financially unfeasible over time. 

What happened after the housing bubble popped? 

In short – a pretty sizable recession (AKA the Great Recession). Essentially, the United States saw a major decline in spend, affecting everything from the job market to business investments. In fact, the recession had such a long lasting effect that it took years for the job and financial market to get back to normal.

What can we learn from the crisis? 

As with any tough situation, there are a few major learnings that can help us all to make better, more informed decisions when it comes to real estate. 

• Be discerning about the types of loans you get into. Make sure you always do your research, read the fine print, and consult an expert before agreeing to any loan. This can keep you from signing up for something you may regret later and, just as important, may give you perspective on other options that you may have (and potentially, not even know).
  

• Before purchasing a house, have a backup plan. Nowadays, purchasing a home requires meeting way more qualifications than in 2008. But regardless, if you choose to purchase a house, make sure you have at least 6 months to a year of mortgage payments saved up (just in case you lose your job or something else happens to your income). This can help to ensure that foreclosures or delinquencies don’t happen (or will buy you some time so that they don’t happen nearly as quickly).
  

• Only purchase a home when it’s right for you. Just because those around you say it’s a great or terrible time to purchase a home doesn’t mean it actually is for you. Being ready to purchase a home can depend on a ton of personal circumstances, and just because it’s the perfect time for one person doesn’t mean it’s the best for someone else. Always consult a lender and realtor to get an understanding of your personal situation, and so you can make the decisions that work best for you and your family.  

While housing crises are certainly difficult (and memorable) for years to come, the goal is to learn as much as we can from each situation to help us make the best decisions we can in the future. The housing crash of 2008 was definitely an anomaly, and one that led to sweeping changes across the lending and mortgage industries. And the hope is that, by learning from some of these rough historical moments, we can create a more stable economy for ourselves, our children, and our neighbors.