Why Today’s Housing Market Isn’t Headed for a Crash

According to a recent survey, 67% of the American population believes that there will be a housing market crash in the next three years. This perception is likely due to the recent coverage of changes in the housing market. However, there is a silver lining. Current data suggests that today’s housing market differs significantly from the one that preceded the 2008 housing crash.

Back Then, Mortgage Standards Were Less Strict

Before the housing crisis, obtaining a home loan was significantly easier than it is in today’s market. Financial institutions lowered lending standards and offered easy qualification for home loans and refinancing, artificially increasing demand.

This resulted in both the individuals and the mortgage products being offered being subjected to greater risk. As a consequence, there was a high number of defaults, foreclosures, and falling home prices. In contrast, the present scenario is different, and potential homebuyers face stricter requirements from mortgage companies. The following chart, which uses data from the Mortgage Bankers Association (MBA), illustrates this trend. The higher the number on the index, the easier it is to get a mortgage, while the lower the number, the harder it is.

The graph also highlights the contrast between the present time and the period leading up to the housing crisis in terms of credit availability. The more stringent lending standards adopted presently have aided in avoiding a scenario that may result in a wave of foreclosures, as experienced during the previous crisis.

Foreclosure Volume Has Declined a Lot Since the Crash

One of the differences between the current housing market and the period preceding the housing crisis is the number of homeowners facing foreclosure. Following the housing bubble burst, there has been a decrease in foreclosure activity, mainly due to the fact that today’s homebuyers are more qualified and less likely to default on their mortgage payments. The following chart, which utilizes data from ATTOM, illustrates the disparity between the then and now in terms of foreclosure activity.

Although there has been a slight increase in foreclosures, the overall number remains low. Moreover, most experts believe that foreclosures will not increase dramatically, as they did following the 2008 crash. Bill McBride, the founder of Calculated Risk, explains that during the previous crisis, a significant surge in foreclosures had an adverse impact on home prices, but such a scenario is unlikely to occur this time around.

“The bottom line is there will be an increase in foreclosures over the next year (from record level lows), but there will not be a huge wave of distressed sales as happened following the housing bubble. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.”

The Supply of Homes for Sale Today Is More Limited

To provide some historical context, the housing crisis was characterized by an excessive number of homes being offered for sale, including those available through short sales and foreclosures, leading to a sharp decline in home prices. While the housing supply has increased since the beginning of this year, there remains a scarcity of available inventory due to years of underbuilding. The chart below, which utilizes data from the National Association of Realtors (NAR), demonstrates how the current supply of homes compares to the period during the housing crisis. Presently, unsold inventory is at a 2.7-month supply, given the current sales pace, which is significantly lower than during the last crisis. Therefore, there isn’t enough inventory available in the market for home prices to plummet as they did before, even though some overheated markets may experience slight price declines.

Bottom Line

If the recent news has raised concerns about another housing crash, the data presented above should alleviate those worries. Expert analyses and the most recent data reveal that the current housing market differs significantly from that of the past crisis.

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Wed, 22 Feb 2023 19:36:51 +0000

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