In 2008, the real estate landscape was on the brink of a monumental change. The Great Recession officially started in December 2007, and the housing industry was on the front lines of the longest economic slump since World War II. Homeowners who had bought at the peak of the housing bubble found themselves underwater on their loans, owing more than their homes were worth on the market, and those risky loans partnered with a rash of foreclosures caused upheaval on the secondary mortgage market, tanking investors and banks left and right.
Today, as home prices have risen back up to pre-crisis levels, the question on a lot of minds is, "What's changed since 2008?" Economic recessions happen regularly, and it's natural to wonder when the next one will rear its head and what it will mean for housing when it does. The changes that have happened in the decade since the Great Recession have also reshaped the housing industry in many ways. Here are 11 ways the housing industry has changed in the past decade, and what it means for homeowners, buyers, sellers, and renters.
The Economy and Employment Is Stronger
One reason why the Great Recession was so acute is because despite the wide availability of mortgage loans at the time, the economy as a whole and employment in particular were not all that strong. The unemployment rate, which measures the rate of people who want to be employed against the rate of people who are employed, was 5% in December 2007. That might not sound all that high, but it means that one in every 20 people who wanted a job couldn't get one. By October 2009, the unemployment rate was 10%.
Today, the unemployment rate is hovering around 4.0% or just below. That might not seem like a huge difference from 5%, but it represents hundreds of thousands more actual jobs. When unemployment goes down, wages go up because employers have to compete harder for qualified workers. Wages haven't historically grown as quickly as home prices, which has made it more difficult to buy a home. And wages still have a ways to go to catch up with home prices, but the fact that we're currently seeing an upward trend in both employment and wage growth is a promising sign for the economy as a whole.
The economy is never invulnerable to a recession, but the more jobs (and better-paid) jobs that are available to workers, the better shape everyone is in -- especially consumers, whose behavior can often dictate whether an economy soars or crashes. When consumers have jobs, they're more willing to spend money.
Mortgage Rates Are Lower Now (But They’re Moving Back Up)
After a decade of mortgage rates in the 3% and 4% ranges, it's no wonder that rates higher than 5.0% feel unnatural, but the annual average 30-year fixed-rate mortgage rate in 2008 was 6.03%. A higher mortgage rate means borrowers will spend more money for the same loan amount over time, so a higher mortgage rate usually means that buyers have less money to spend on the sales price of the home, so it's always a good idea to shop around when looking at home loans and heavily weigh the rate you're being offered.
Mortgage rates have stayed in the 4% range throughout 2018, so they're still relatively close to historic lows, but they've been steadily creeping up all year, and many economists predict that we aren't too far from rates in the 5% range and that we will be continuing to see rates rise as 2019 arrives. This could mean that sellers are going to have to shoot for a lower price range than they hoped when they do decide to move up, or that buyers need to budget more carefully, so it's always smart to pay attention to rates and talk to a mortgage broker if you're thinking about entering the housing market.
Institutional Rental Investors Are More Widespread
When the wave of foreclosures hit the country, a lot of single-family homes were left vacant. It was a prime opportunity for institutional rental investors to buy up rental homes at good prices, which many of those investors proceeded to do at fast paces. After fixing the homes up, these investors were able to rent them out for a profit, and as the housing market recovered and rental prices began to rise, this investment became even more lucrative.
This prevalence of institutional investors and their more widespread ownership of entry-level housing stock has also contributed to other issues, like the fact that there are too few houses on the market to meet demand.
There’s Much (Much!) Less Inventory
One reason why home prices have grown across the country is because there are simply not enough homes for sale to meet buyer demand. Not only did the recession stall housing development, but increased regulations, more expensive labor, and more expensive building materials all have helped form an environment where developers can have difficulty making a profit for entry-level and even mid-level housing. Some developers were not able to weather the recession at all, while others who did survive pivoted to building luxury, high-end homes and apartments in order to be sure they'd make a profit on their investment.
The lack of housing inventory has also shortened the amount of time that many homes are on the market, leading to some environments where homes in desirable locations are sold very quickly and even sparking bidding wars in some cases.
But It’s Easier Than Ever to Find a Home to Buy
Although there are too few homes for sale, if you're a buyer, it's never been easier to find a home for sale. There's no need to find an agent so you can look through listings; instead, you can just pull up the browser on your phone -- or a home search app -- and look at homes for sale on Zillow, Trulia, Redfin, and many other platforms. In this age of the internet, many listing agents invest in separate web pages for each individual listing, so you can also find all the same details by just punching in an interesting address on Google.
That said, if you don't make it to the open house (if there even is an open house), then your opportunity to walk through the place to see it for yourself will still require talking to an agent.
Regulations Make It More Challenging to Secure a Mortgage
After the recession, several pieces of legislation were passed that were designed to tighten up loan standards and make it more difficult to issue loans to buyers without substantial proof of income, assets, and debts. Anyone who's bought a home or applied for a mortgage in the past decade will understand what this means in practice: Submitting years of past tax returns, months of bank statements, pay stubs and other proof of income, itemizations of debts, summaries of any savings and assets -- the list seems never-ending.
As the economy got back on its feet and lenders began dealing with these new standards, they became much more cautious about mortgage loans. This is a good thing insofar as preventing another housing crash, but it hasn't felt great for buyers whose credit or lack of a down payment has prevented them from securing a mortgage loan with good terms.
Real Estate Appraisers Are Now Required to Be Independent
Another repercussion of the recession and the new regulations that followed is a change in how real estate appraisers work. Previously, appraisers would be hired directly by a mortgage broker, real estate agent, or somebody else with a vested interest in seeing the house appraised at a certain value. Maybe the mortgage broker or agent's commission was on the line, and those deal participants would sometimes have an opportunity to "nudge" the appraiser to come up with something favorable to them.
One of the new regulations states that appraisers must be independent and that no other participants in the real estate sale, from either side, should have any influence over the appraiser and the appraiser's decision.
Crowdfunded Down Payments Are a Thing
Because mortgage loans are more difficult to secure, the down payment has become an increasingly important part of the mortgage process for buyers. But as prices have gone up on homes across the country, being able to save up 20% or more of a home's total purchase price has become difficult to downright impossible in many markets.
Crowdfunded down payments are one solution. This is a way for buyers to increase their down payment and investors to park some of their money in an appreciating asset, the house. In exchange for money toward the down payment, crowdfunding investors accept a portion of the equity in the home; when the seller gets ready to move on or wants to buy out the investor, the investor will receive their share of the home's value.
Agents Get Reviewed
The internet has caused one other big change in real estate during the past decade: There are reviews for everything online, from home inspectors to real estate agents. In the past, most buyers had to rely on referrals, Google, or even something called the Yellow Pages when they needed to talk to someone about their real estate needs, but you didn't always know what you were getting into.
Like everyone else on the internet who does business, agents get reviewed now, too. You can see firsthand how agents handle disgruntled clients and what their most loyal business associates have to say about them.
Consumers Have More Options When It Comes to Buying and Selling
Not only can buyers find homes for sale online, but we've even reached a point in our internet evolution when, in certain cities, sellers can sell their house to a company like Opendoor and now even Zillow. Buyers in those cities can also buy homes from these internet-based companies. And both buyers and sellers have a lot more options when it comes to working with a real estate agent, including teams, agents who offer small commissions or flat fees, and many others.
Some of these new avenues work very well for the buyers and sellers who use them, but like for-sale-by-owner, it doesn't work for everybody. People have different needs and desires, and this is perhaps especially true when it comes to their homes; even if only because no piece of land is exactly like another, no house is exactly like any other house. There will always be people who don't have time to do it themselves, or who want to make sure they're getting the maximum possible return on their investment, or who want a high level of service and one-on-one connection with their agents. As the space becomes more competitive, the best agents will rise to the top, and a real estate agent should be able to explain exactly what you'll be losing if you go with an alternate option.
Buyers and Sellers Know More (And Less) Than They Used To
Not only is the internet providing more details about individual homes than ever before, but there has also been a wave of home-improvement and home sales shows sweeping reality television, encompassing everything from luxury real estate sales to fix-and-flip investment. As a result, people are both more educated and more ignorant about real estate than they used to be.
Take those search portals, for example. They don't always carry the most up-to-date information in every market, which is most frequently updated on the MLS. The home data on those portals also isn't always accurate, and the value estimates and rental estimates can be way off, too.
And reality television, of course, is definitely not representative of reality itself. It's streamlined and edited for drama and narrative tension, so often both the good and bad of a deal can be wildly exaggerated.
If you haven't bought a house in the past ten years, then maybe you didn't realize how much things have changed. How will you know if the time is right to dive back into the housing market? Talk to a local real estate expert about your own situation and household before you start bidding on homes online -- it could save you time, money, and energy.