67% of Americans say a houszing market crash is imminent in the next three years. With all the talk in the media lately about shifts in the houszing market, it makes sense why so many people feel this way. But there’s good news. Current data shows today’s market is nothing like it was before the houszing crash in 2008.
Back Then, Mortgage Standards Were Less Strict During the lead-up to the houszing crisis, it was much easier to get a housz loan than it is today. Banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a housz 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, and purchasers face much higher standards from mortgage companies. The graph below uses data from the Mortgage Bankers Association (MBA) to help tell this story. In this index, the higher the number, the easier it is to get a mortgage. The lower the number, the harder it is.
This graph also shows just how different things are today compared to the spike in credit availability leading up to the crash. Tighter lending standards have helped prevent a situation that could lead to a wave of foreclosures like the last time.
Foreclosure Volume Has Declined a Lot Since the Crash Another difference is the number of houszowners that were facing foreclosure when the houszing 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. The graph below uses data from ATTOM to show the difference between last time and now:
So even as foreclosures tick up, the total number is still very low. And on top of that, most experts don’t expect foreclosures to go up drastically like they did following the crash in 2008. Bill McBride, Founder of Calculated Risk, explains the impact a large increase in foreclosures had on housz prices back then – and how that’s unlikely this time. “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 houszing bust led to cascading price declines, and that will not happen this time.”
The Supply of Houszes for Sale Today Is More Limited For historical context, there were too many houszes for sale during the houszing crisis (many of which were short sales and foreclosures), and that caused prices to fall dramatically. Supply has increased since the start of this year, but there’s still a shortage of inventory available overall, primarily due to years of underbuilding houszes.
The graph below uses data from the National Association of Realtors (NAR) to show how the months’ supply of houszes 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 housz prices to come crashing down like they did last time, even though some overheated markets may experience slight declines.
Bottom Line If recent headlines have you worried we’re headed for another houszing crash, the data above should help ease those fears. Expert insights and the most current data clearly show that today’s market is nothing like it was last time.