Most of you reading this will remember the 2009 housing crash that sent the US into a deep recession that took nearly 10 years to recover from. Well it might seem like the US is headed there again. With high mortgage rates, home prices if decreasing 5% would fall into negative equity and other housing markets still skyrocketing in price.
What happened in 2009 that spilled over into one of the biggest recessions in recent history was banks giving out loans for houses which they shouldn't have. Just recently a new bank issued out a 1% down mortgage which wait... normally you are required to put down 3.5% and 20% depending on the loan.
This sounds crazy at first and it's a new loan program offered by the popular housing search platform zillow. The idea is those with crazy high rentals at the moment would be able to buy a new house and simply transfer that monthly rent payment into a housing payment instead.
While this sounds great it's exactly loaded with fine print. This fine print has extremally limited and is designed in a way to limited it to income types, low cost housing and limited areas.
That is however until you start to look further and realize that there are now other programs offering this. Most of these banks are simplifying the grant process in which they do instead of the client which often don't know about it or don't know how to go about it.
While this sounds great and could be an option to get more into owning a house over renting there are some pretty high risks in the short term. As of writing this the housing market is expected to keep going up through 2024. However that increase seems like it's going to disappear after that time as high mortgage rates slow everything down further and put those who bought a house under these grants a risk if the economy slows down, job loss etc.
It would create an era of people who wouldn't be able to sell their home and profit because of their massive loan in which they would actually have to pay out more money then they got in value of the house in the last year. Now speed up into 2-5 years the risk starts to mitigate itself which means banks are betting pretty heavy that people getting these loans are going to be able to keep their jobs for years and not worry about layoffs.
To me that seems like a near repeat of 2009 however a bit more limited. If the economy came crashing down only a fraction of home buys would be at real risk and most likely claim bankruptcy. Unlike in 2009 where everything blew up from rich to poor.
It's still something to watch and consider as we head into 2024 and then into 2025 about how the housing market and general economy is doing.
