A Long Decade
There are some national events that, if brought up, provoke the sharing of stories about where everyone was, or what was going on in their lives, when the event occurred. Often, it is a tragedy, like September 11, 2001; sometimes, it’s happy, like a sports championship. For homeowners and property managers in 2008, you may not remember exactly what you were doing when you learned of the housing crash but you can likely recall the immediate and long-term repercussions.
Once banks like Lehman Brothers filed for bankruptcy, a few things happened in quick succession:
- The Secretary of the Treasury and chairman of the Federal Reserve both stood before Congress and pleaded for a bail-out.
- The Obama administration passed a stimulus package in early 2009.
- The term “quantitative easing” entered the national lexicon as the government began buying bonds.
- Banks big and small underwent a widespread policy reformation so that this never happened again.
Each of these results has been documented time and again, as well as the data surrounding the aftermath. In addition to millions of Americans losing their homes and a 10% bump in unemployment, the entire world became aware of the woes of the American economy, the problems of which naturally radiated to other countries.
With more people ending up in rental situations than ever before, property management in Utah (as in everywhere else) became extremely important. Today, our world reflects the political and sociological fallout of the housing market crash. The question is, are we headed for another?
Signs of the Times
If you are involved in rental property management, you likely have your ear to the ground regarding the current state of the housing market. To put it simply, there is far too little supply to meet the increasing demand and many houses have experienced a boost to their value in the hundreds of thousands of dollars.
Meanwhile, professions like property realtors have seen their ranks increase hundreds-fold, which means that there are literally thousands of professionals for every single home on the market. This isn’t being helped by the fact that many builders haven’t been able to find consistent work, which means we are seriously underbuilding to meet demand.
To say that this is a seller’s market, then, would be a colossal understatement. But crashes occur when the bubble gets too big and bursts, which means we may be in for another pop before too long. After all, there are a few big similarities between today and the crash of 2008:
- House prices have risen sharply (or 11%) year-over-year to reflect the supply/demand imbalance.
- Similar price hikes have been seen in the cities as well as the suburbs.
- Americans are paying more for previously-owned single-family homes than newly constructed ones.
- The number of home equity loans being taken out is increasing.
For property managers, this all seems like a dream come true. People are willing to buy or rent almost anything and there is more money to borrow against the property to make long-needed improvements. Things like tenant screenings are becoming increasingly more important as the demand to fill vacancies grows and grows. But there is always risk involved.
The 2008 market crash was thanks in large measure to the bad loans being given out by banks to people who didn’t have a hope of repaying them. Such a sharp uptick in home equity today means that there is a chance that those in rental property management will be unlucky tomorrow, as the red-hot demand cools down and prices decrease.
Things being as they’ve been of late, however, a record number of refinances took place in 2020 — many with the express purpose of taking out money from their property’s equity. This is well and good for someone in Utah property management, who has seen cities expand with unprecedented growth virtually overnight. But if the home ends up decreasing in value, the owner may end up paying back more than it’s worth.
In the end, while the specific problems that caused the 2008 housing crash have been safeguarded against happening again, there is no shortage of trends that link that time to our day, today. It is wise to recognize the inherent risks associated with any type of loan and to conduct all your business (especially with a bank) in a timely manner.
For those who are looking for rental property management, Rhino Property Management is as capable a partner as you could hope for. We can ensure that this time is spent well for you as well as your tenants and that the property itself looks better than ever.