Waiting for The Next Big Market Crash?

What memories do you have of 2007? Some have good memories of this year, but for others (especially homeowners) this was one of the worst years. Around this time the housing market crashed and home values plummeted. For some, their home value was far below the mortgage they owed. Many homeowners were not able to get affordable refinancing and were no longer able to pay their mortgages. Foreclosures and short sales left sellers at a loss, losing their equity of thousands, tens of thousands and even hundreds of thousands. For first time buyers and lenders that were able to purchase with cash or somehow secure a loan, they were able to buy homes at an incredibly low price. Home prices eventually came back up and those that took advantage of the crash saw tens and hundreds of thousands of value increase over the span of just 4-7 years.

Here's something important to consider if there is another crash:

Unless you do not own a home during such an event, you will probably not be in a good financial position. Also, in 2007-08 banks were losing a lot of money and some were closing their doors permanently. They were very reluctant to give home loans during this time. In the event of another crash, unless you had all cash or outstanding credit and a steady well paying job, you would have difficulty buying a home. In the case you were able to get a loan and an offer accepted, you would probably have to wait for some time before you knew for certain the home was yours. Foreclosures can take longer than normal sales. Short sales, which are also done when the homeowner can not afford loan payments, can take 3-6 months.

Do you still want to wait to buy a home during a market crash to get a great deal? Ok, but you will be waiting for an extremely long time, for years, maybe even decades. Do you know why there was a market crash back in 2007? Inflation? Artificial prices? Bubble burst? Ok, here is what was going on... many banks were issuing mortgages when they KNEW that the purchasers were not able to afford payments. Why would they do that when they would have to foreclose and lose out? Well, soon after issuing the mortgage, they would turn around and sell it on the market to investors. Here is what was happening: 1. Issue a high risk mortgage 2. Group with other mortgages as a package and sell to investors 3. Repeat. This terrible practice was happening well before 2007, but too many dishonest lenders jumped on board in the years preceding. Bad lending practices coupled with a combination of other economic factors, and it all blew up.

Since that time, the U.S. government made some huge reforms in the financial industry. They put stricter regulations on lenders which set a standard for underwriting practices (criteria used to determine loan eligibility) and required lenders to be clear and upfront with rates and fees. This caused banks and other lenders to conduct business in the highest ethical standards that this country has seen. The government also changed the market positively by regulating bank reserves, offering assistance to them and special loan options to buyers, and regulating loan rates, changing them slowly to allow a steady and much safer economy.

If you're waiting for the next crash, I hate to break your bubble, but it probably won't come soon. A lot of changes were implemented when the government intervened which safeguarded us from the same circumstances happening again. Let's enjoy a steady market and transparent lenders. Buy a home when you are ready. Don't pay rent, build equity!

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