Don’t Wait for a Real Estate Crash BY JAY WHITE
Nowadays, many are wondering, “where is the real estate crash?” After historic appreciation of homes in the Atlanta market, many think the prices of homes are going to decline. It is important to look at the 2007 housing crisis, which carried into 2009, and understand what caused it, before waiting on prices to drop. The three main factors that led to the housing crisis in 2007 were a combination of rising home prices, loose lending practices, and the creation of even more subprime loans to make buying a home available to everyone, which, eventually, led to a tsunami of foreclosures. The creation of subprime products in 2007 and loose lending practices allowed people to buy homes they truly could not afford. For example, someone making $36,000 a year, and buying a $400,000 home, was allowed to state alternate income without proving this income. This, coupled with shortterm, interest-only loans that fully amortized two to five years later, in most cases, created a situation where the previously mentioned buyer could not afford this $400,000 home, and, ultimately, walked away and was foreclosed, thus hurting values across neighborhoods in Atlanta. The Dodd Frank Act was enacted in July 2010 to prevent this from happening again. One of the many provisions in the Dodd
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AROUND KENNESAW | February 2022
Frank Act requires lenders to determine a buyer’s ability to repay (ATR) when underwriting a loan. Therefore, any income listed on a mortgage application must be verified through paystubs, W2s and tax returns, whichever applies to each applicant’s situation. Credit requirements also were enhanced, along with the requirement of down payments, versus 100% financing. If these rules are not properly followed, lenders can be fined, or even made to cease and desist operations. Recently, statistics were released showing that late mortgage payments were at an all-time low, with lenders not forced to foreclose on homes. The mortgage climate is healthy and, with strict underwriting requirements in place, will allow the market to sustain rising home prices with minimal default. This does not mean that demand will slow, and sellers no longer will get 20 offers on a home with the highest bidder winning, but supply eventually will slow down the appreciation factor. So, don’t wait to buy that next home! Jay White, top 1% in the nation in mortgage originators according to Mortgage Executive magazine, has 19 years of experience and is a multimillion dollar producer for Bay Equity Home Loans.
