Why Today’s Housing Market Isn’t Headed for a Crash
67% of Americans say a housing market crash is imminent in the next three years. With all the talk in the media lately about shifts in the housing market, it makes sense why so many people feel this way. But there is good news. Current data shows TODAY’S MARKET IS NOTHING LIKE IT WAS BEFORE THE HOUSING CRASH IN 2008!
Back Then, Mortgage Standards Were Less Strict
During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. Banks were creating artificial demand by lowering lending standards. That made it easy for just about anyone to qualify for a home loan or refinance an existing one.
As a result, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices. Today, things are different. Purchasers face much higher standards from mortgage companies.
The graph below uses data from the Mortgage Bankers Association to help tell this story. The higher the number, the easier it is to get a mortgage. The lower the number, the harder it is.
Foreclosure Volume Has Declined a Lot Since the Crash
Another difference is the number of homeowners that were facing foreclosure when the housing bubble burst. Foreclosure activity has been lower since the crash, largely because buyers today are more qualified and less likely to default on their loans.
So even as foreclosures tick up, the total number is still very low. Most experts don’t expect foreclosures to go up like they did following the crash in 2008.
The Supply of Homes for Sale Today Is More Limited
There were too many homes for sale during the housing crisis. That caused prices to fall dramatically. Supply has increased since the start of this year, but there is still a shortage of inventory available over all. This is due to years of underbuilding homes.
The graph below uses data from the National Association of Realtors to show how the months’ supply of homes available now compares to the crash. Today, unsold inventory sits at just 2.7-months’ supply at the current sales pace, which is significantly lower than the last time. There just isn’t enough inventory on the market for home prices to come crashing down like they did last time.
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