Global housing market crash: Lessons and cautionary tales

“So there’s a lot of similarities in respects to prices of homes coming down and appraisals not coming in and just people not being able to get into that into their property. There’s a lot of similarities in the sense that prices were being depressed and it’s just getting more and more difficult to transact and, fast forward to now, with the supply chain issues and all the other issues that are happening, there’s definitely a major cause for concern in this current market. And it’s gonna be interesting to see what transpires in the next 12 to 18 months with rising interest rates.”

Cavanaugh added a different perspective to Allen’s concerns: “I think that the similarities are the fear, the feelings, the post-traumatic stress,” she said. “But here’s the difference. Back then, we watched investors slowly start to loosen their guidelines and begin to compromise the foundational and fundamental question of all mortgage loans, which is, ‘does the consumer have the ability to repay this whole loan?’ And we’ve completely changed the game there.

“Back then, we had not only loosening of the guidelines on whether they could repay the loan, but we had extremely high loan-to-value ratios and very little equity and very little skin in the game. And we also had all sorts of alternative qualifying methods, including no income and no asset qualifying loan. So you had sort of the perfect storm of very little equity, very little verification of the person’s actual ability to repay the mortgage loan. And then to add to that, you had a program like the adjustable rate and negatively amortizing mortgage loan in which borrowers were making, you know, interest only payments on a loan and the loans were negatively amortizing, and you had so many things leading us down a really bad path.”