The 4 housing market myths hurting buyers and sellers

The housing market has been decidedly stuck of late. Sellers wﷺith low mortgag🐻e rates are holding on to their homes, leaving buyers with scant listings to choose from.

And buyers who ꩵdo find a house face substantial economic challenges as median home prices and mortga🔯ge rates remain high.

With sellers and buyers at an impasse, misconceptions🐼 and outright myths are popping up on both sides about the state of the market on social channels and forums.

However, some of the supposed housing issues that are coming up time and🐼 again aren’t true. Here are the four biggest myths about the current housing market and why experts say they’re wrong.

1. The housing market is about to crash, just like in 2008

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Today’s buy-sell stalemate has some would-be buyers almost hoping that we are in a 🌄bubble—that it will burst and lead to plentiful homes available at fire-sale prices.

No one can blame a buyer dealing with the double whammy of higher home prices and interest rates for hoping for a l♊ucky break. But the reality is t💯hat the 2008 housing market collapse tripped a recession that caused record job losses. And job loss doesn’t further anyone’s financial dreams.

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Even if we are in a bubble right now—and most experts say it’s har𓂃d to call it until it’s in the rearview mirror—conditions are not at all like they were in 2008.

Unlike today, there was a glut of new homes being built the🐽n, sellꩵers were trying to attract buyers, and homebuyers could qualify for a mortgage with little to no money down.

“T💫hat access to credit incl🦄uded a surge in lenders offering loans to buyers with lower credit scores, or subprime borrowers,” says Chris Ragland, principal at Ragland Capital.

Easy credit might sound good in theory, but some loans were adjustable-rate mortgages with a🦋 low “introductory teaser” rate. And once the introductor🔯y rate ended and the loan adjusted to a higher rate, some buyers could no longer afford their monthly payments.

“Subprime borrowers in particular⭕ who suffered a job loss had little to no accumulated equity in their homes,” says Ragland. So when the economic downturn𓄧 came, they were immediately underwater on their loans and many defaulted.

None of these cond🧜itions is true now. Today, almost half of all homeowners have more than 50% equity.

“Laws were passed in 2010 to strengthen v♎erification of a borrower’s ability to repay a𒊎 loan,” says Ragland.

Andꦺ the drivers of today’s ♛home prices are entirely different.

“The 2020 to 2022 price increase was driven by an inventory shortage and unusually low interest rates,” says Bruce Ailion, attorney and real estate professional ꧙in Atlanta.

2. Owners have such good rates, they will never sell

One of the biggest 𓂃complaints about today’s housing market is that there just aren’t enough homes for sale. And given the unbeatable interest rates available two years ago, when many bougꦍht or refinanced, what would make sellers budge?

“Mortgage rates were forced lower than they should have been, lower than they likely ever will be again,” says Ail🌼ion. So when you look at it from the seller’s point of view, it doesn’t make sense to give up a low long-term rate.

But in r♔eality, there are always life events that 🦄force homeowners to sell.

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People get new jobs and have to relocate. Growing families need more room or want to be in a particular school district. Retirees downsize&nﷺbsp;or move to a better climate. Seniors move to be closer to family or go into assisted living. And their home will go up for sale.

3. As rates rise, home prices will drop

Many would-be homebuyers have hoped that higher ꦅinterest rates would bring down home prices. But the relationship between interest rates and home prices is complex.

“Inter𝔍estingly, the increase in interest rates has not resulted in a decline in prices in most markets,” says Ailion.

In fact, home prices have been all over the place this year and vary from city to city. Home pri💦ces are still being driven by inventory. And🅺 in the most popular locations, an updated home that’s move-in ready might still get multiple offers.

“Some buyers are dating the rate and marrying the house,” Ai൩lion explains. “Today’s high interest rates can be refinanced in the future. And today’s housing prices will likely be higher when those lower interest rates return.”

4. Good-credit buyers are subsidizing buyers with bad credit

This m🌱yth blew up over a misunders꧒tanding about government-backed Fannie Mae and Freddie Mac loans and a new .

Fannie and Freddie are government-sponsored enterprises (GSEs) on a mission to make mor𒁏tgages more accessible to first-time homebuyers with lower incomes but good 𝔍credit. They don’t issue loans directly but work with lenders to lower their risk by guaranteeing certain loans should the borrower default.

The organizatio❀ns also purchase other lenders’ loans on the secondary market and sell them to investors as mortgage-backed securities. This allows lenders to keep lending to new borrowers.

Fannie and Freddie are essential organizations in the mortgage industry. About 70% of all mortgages are GSE-backed. So they can set require🍸m𓂃ents and establish fees.

The new fee structure eliminated upfront fees for first-time homebuyers. At the same time, it increased fees for other loans that are outside the organizations’ stated mission and borrowers who don’t need a leg up: namely, second-home loans, high-balance loans, and cash-out refinance🔥s.

It re🍒ally had nothing to do with a borrower’s credit score.

“It’s a myth𓃲,” says Ailion. “Buyers with poor credit always pay a higher interest rate than buyers with good cr💖edit.”