With interest rates hovering in the 8% range and home prices holding steady, many potential buyers...
There has been a prevailing concern of late that the housing market might be on the edge of a crash. With the notable affordability obstacles in the housing realm and an abundance of recession discussions in the media, it's hardly surprising that such apprehensions have emerged.
However, a closer examination of the data clearly reveals that the present-day market exhibits a distinct difference from its pre-2008 counterpart, where the housing crash occurred.
Rest assured, history is not repeating itself, here’s why.
1. Stricter Loan Approval Criteria
Securing a home loan today is significantly more challenging than during the prelude to the 2008 housing crisis. Back then, lending standards were far more lenient, enabling almost anyone to qualify for home loans or refinancing. Consequently, lending institutions assumed considerably higher risks, both in terms of the borrowers and the mortgage products offered. This paved the way for widespread defaults, foreclosures, and plummeting property values.
Fast forward to the present, and potential buyers face markedly higher expectations set by mortgage companies. Illustrated by the graph below, sourced from the Mortgage Bankers Association (MBA), this transition is evident. The lower the number, the harder it is to get a mortgage, the higher the number, the easier it is to get an approval.
2. Faster Unemployment Recovery
Though the pandemic induced a surge in unemployment during past years, the jobless rate has already rebounded to pre-pandemic levels (as indicated by the blue line in the graph below). This contrasts significantly with the Great Recession, during which a substantial number of individuals remained unemployed for a prolonged period (depicted in red in the graph below):
This rapid job market recovery contributes to housing market stability. With a greater portion of the population employed, the risk of homeowners facing financial adversity and mortgage defaults diminishes. This positive scenario fortifies the current housing market and mitigates the influx of foreclosures.
3. Scarce Inventory of Homes
The housing crisis was exacerbated by an excessive supply of homes for sale, including a significant number of short sales and foreclosures, leading to steep price declines. Conversely, today's landscape is characterized by a notable shortage of overall inventory, primarily attributable to years of inadequate housing construction.
Drawing on data from the National Association of Realtors (NAR) and the Federal Reserve, the graph below showcases the contrast between the current months’ supply of homes for sale and the crash period. Presently, unsold inventory amounts to a mere 2.6 months' supply. The current scarcity of available homes is a crucial factor preventing home prices from plunging as they did in 2008.
4. Historically High Equity Levels
The scarcity of homes for sale during the pandemic played a pivotal role in sustaining upward pressure on home prices. Consequently, homeowners today enjoy historically significant equity levels (as depicted in the graph below):
After more than a decade of home price appreciation, homeowners have record amounts of equity. High equity helps homeowners weather a shallow recession and protect from foreclosure should they fall behind on their mortgage payments.
Summary
Data analysis is increasingly important as you navigate the real estate market in your area. I hope these graphs and overview have helped to shed light on the differences between the market today and the market in 2008, and highlighted why the current market landscape is so different than the circumstances leading up to the prior market crash last time.
Let's figure out how you can take advantage of the current market dynamics to achieve your real estate goals. Reach out to me today for a quick discussion or consult.
If you're in the market to buy/sell a home, or you just want to chat about real estate, let’s connect! We're happy to share market resources, vendor referrals or anything else that would be helpful in your journey.
Michelle Fitzgerald
Real Estate Broker, Realtor®
email: michelle@michellesellsdenver.com
Instagram: https://www.instagram.com/michelle_sellsdenver/