Source:https://www.youtube.com/shorts/1SgePY9vfXs

What if the housing market crashed? And if the Delaware home that you own worth $500,000 is now all of a sudden worth just $350,000, what are you going to do? 

This scenario terrifies a lot of people. Most people do not even want to talk about it. Hence, not everyone is prepared for it. 

But, this lack of engagement in the topic is the very reason why people always respond in panic. As a result, people become highly emotional with their decisions and quickly sell their homes at a loss. Thus, knowing what to do in the event of a market crash is a very wise thing to do as a homeowner. 

So, what if the market indeed crashed? Well, believe it or not, the best thing to do when the market crashes is… to do nothing. Here’s why.

The Difference Between Today vs 2008

In 2008, a lot of people had what was called adjustable-rate mortgages (ARM). An ARM is a home loan with an interest rate that regularly changes for a specified period. This means that monthly payments can fluctuate up or down according to its certain financial benchmark, which is highly dependent on the direction of the US economy. 

Most of the time, the initial interest rate of an ARM is lower than that of a comparable fixed-rate mortgage. This is what makes it so attractive to first-time home buyers. However, ARMs are highly dependent on the interest rates that the Federal Reserve gives to the banks, which in turn adjusts their interest rates for the consumers and homeowners. 

In short, adjustable-rate mortgages are good for short-term loans, but for long-term? It could be a bad idea because no one can predict what will happen in the market. And the 2008 Market Crash proved it. 

How It All Went Downhill

Now, these mortgage companies were giving people loans that they could hardly afford to pay as it was. And they kept saying that ARMs will continue to adjust favorably for them every year and they can pay it as long as they can since they believed that the housing market was rock-solid and would never crash.

But, when the Federal Reserve raised the interest rates, banks needed to follow through. And when the banks raised their interest rates, people suddenly couldn’t afford their monthly payments. In other words, with an adjustable-rate mortgage, the bank could come in at any moment and just say that their mortgage payments are now bigger. That is not quite fair, right?

Hence, homeowners began to default, and it’s like they are being forced to sell their property for a lower price. This cycle of homeowners defaulting and selling at lower prices and no one buying new homes caused the deep dive of the Market Crash of 2008.

It’s Much More Regulated Now

Now, the mortgage companies are highly regulated, and the people who have mortgages have better and stricter proof that they can afford them. People learned how adjustable-rate mortgages can be a source of disaster if not regulated properly. So, we don’t have a lot of adjustable-rate mortgages today compared to a decade ago.

Hence, if you own a house, and the market crashes, the best thing to do is do nothing, be patient that things will get better, and just weather it out. We could only have a crash if we had a huge spike in supply or homes available to buy and a giant drop-off in demand for people who want to buy a home right now. And both scenarios are very unlikely to happen as we discussed in full here. 

Closing Thoughts

Now, you know what you would do next if the market crashed. You can avoid rash decisions and keep your emotions in check, knowing that there is no market crash in sight. But no one knows the future, and being prepared is always better. Feel free to contact us at Loft Realty if you want to strategize and have a game plan for securing your Delaware home through these turbulent times.